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Financing  an  Empire 

History  of  Banking  in  Illinois 


By  FRANCIS  MURRAY  HUSTON 


ANDREW  RUSSEL 

SUPERVISING   EDITOR 


VOLUME  I 


ILLUSTRATED 


CHICAGO 
THE  S.  J.  CLARKE  PUBLISHING  COMPANY 

1926 


Copyright,   1926 

BY 

FKANCIS  MURRAY  HUSTON 


ENG    BY   HENRY    TAYLOR    JH. 


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AUTHORS  PREFACE 

In  the  preparation  of  this  work  the  author  has  had  constantly 
before  him  the  twofold  function  of  a  historian,  namely,  the  recording 
of  events  and  analysing  their  proportionate  significance  to  the  sub- 
ject  he  is  treating.  In  some  instances  it  has  been  found  necessary 
to  sacrifice  chronolgy  in  order  that  the  manifold  factors  in  the  bank- 
ing development  of  Illinois  might  be  shown  in  a  more  logical  relation, 
but  on  the  whole  the  historical  order  in  which  events  occurred  has  been 
adhered  to  in  telling  the  story. 

The  author,  too,  has  been  confronted  at  almost  every  step  with 
the  realization  that  the  record  of  the  growth  of  Illinois'  banking 
structure  cannot  be  isolated  and  divorced  from  the  struggle  toward 
sound  banking  that  has  characterized  the  trend  of  economic  history 
of  the  entire  country.  For  this  reason,  many  subjects  of  paramount 
importance  to  the  state,  have  of  necessity  been  treated  from  a  national 
viewpoint,  and  their  application  to  Illinois  has  perforce  been  sec- 
ondary. 

Obligations   almost   too  numerous   for   specific   acknowledgment 

.  have  been  incurred  in  the  preparation  of  this  volume.     Omission  to 

mention  many  individuals  who  have  been  helpful  is  due  rather  to  lack 

-  of  space  than  to  any  desire  to  minimize  the  value  of  the  assistance 

they  have  given. 

The  first  to  be  mentioned  is  the  Supervising  Editor,  Andrew 
Russel,  for  his  helpful  cooperation  throughout  the  preparation  of  the 
work.  To  General  Charles  G.  Dawes,  Vice  President  of  the  United 
States,  William  A.  Heath,  Chairman,  and  James  B.  McDougal,  Gov- 
ernor, of  the  Federal  Reserve  Bank  of  Chicago  are  due  expressions 
^of  sincerest  thanks  for  their  friendly  and  helpful  attitude.  Among 
the  many  bankers  and  others  of  Chicago  who  have  given  of  them- 
selves most  generously  are  John  J.  Mitchell,  A.  W.  Harris,  F.  II. 
Rawson,  LeRoy  A.  Goddard,  George  M.  Reynolds,  Harry  A. 
Wheeler,  William  R.  Dawes,  F.  W.  Leach,  S.  T.Kiddoo,  Guy  Hus- 
ton, C.  E.  Estes,  Frederick  M.  Wilk,  B.  A.  Eckhart,  E.  X.  Baty, 
and  A.  S.  Badger. 

Special  thanks  are  due  to  T.  C.  Stibbs  for  his  generous  assistance 
in  the  preparation  of  the  manuscript  for  chapters  covering  the  Chi- 

vii 


viii  AUTHOR'S  PREFACE 

cago  Clearing  House  Association  and  various  bankers'  organizations 
which  he  lias  served  as  secretary;  to  Everett  L.  Harris  who  has  simi- 
larly made  possible  a  complete  story  of  war  financing  by  means  of 
certificates  of  indebtedness;  and  to  Judge  A.  C.  Barnes  for  authentic 
material  on  the  development  of  banking  law. 

For  the  many  interesting  illustrations  included  in  the  volume  the 
author  acknowledges  his  indebtedness  to  the  Chicago  Historical  So- 
ciety, the  Central  Trust  Company  of  Illinois,  the  Northern  Trust 
Company,  and  the  First  National  Bank  of  Chicago.  To  F.  G. 
Duffield,  of  Baltimore,  is  due  the  credit  for  securing  the  old  paper 
currency  reproduced  herewith.  D.  C.  Wismer  of  Hatfield,  Pa.,  and 
Waldo  C.  Moore  of  Lewisburg,  Ohio,  have  supplied  the  more  valu- 
able of  these  notes. 

Material  for  the  text  was  secured  in  large  part  through  the 
splendid  cooperation  of  Robert  J.  Usher  of  the  John  Crerar  Library; 
the  Chicago  Tribune  Library;  Miss  Ruth  G.  Nichols,  Librarian  of 
the  Federal  Reserve  Bank  of  Chicago;  the  Chicago  Historical  Library 
and  the  Continental  and  Commercial  Bank  Library  of  Chicago. 

This  acknowledgment  would  be  incomplete  without  an  expression 
of  the  author's  deep  obligation  to  Miss  Margaret  Grobben  and  Har- 
ris G.  Pett,  both  of  whom  have  contributed  valuable  assistance  in  this 
endeavor  to  give  Illinois  an  authentic  history  of  banking. 

Francis  Murray  Huston. 
April  28,  1926. 


TABLE  OF  CONTENTS 


CHAPTER  I 
PRE-BANKING  DAYS 

Four  banking  periods — Financial  transactions  with  Indians — La  Salle — Starved  Rock 
the  first  trading  post  in  Illinois — Fort  St.  Louis,  the  first  permanent  village — 
Destruction  of  trading  started  by  La  Salle — Mississippi  bubble — First  big  business 
venture — Land  speculation 31 

CHAPTER  II 
EARLY  CURRENCY  AND  BANKING 

Economic  developments  after  War  of  1812 — First  banking  system  in  Illinois — Banks  of 
Shawneetown,  Edwardsville,  Kaskaskia  and  Cairo — Ninian  Edwards 47 

CHAPTER    III 
FIRST    AND    SECOND    STATE    BANKS 

First  State  Bank  and  depression  of  1819 — Currency  media  in  Illinois — Second  state 
bank,  its  organization  and  provisions — Illegal  loans — Depreciation  of  paper  money 
issues — Closing  of  the  banks  in  1831 — Causes  for  failure  of  state  banks — Scarcity  of 
specie — The  Wiggins  loan — State  taxation 64 

CHAPTER  IV 
INTERNAL  IMPROVEMENT  MANIA 

Early  development  of  Chicago — Growing  problems  of  transportation — Plans  for  the 
Illinois-Michigan  Canal — Third  state  bank  established  under  private  management 
— Financing  state  improvements  through  the  bank — General  transportation 
projects — Cessation  of  work  on  public  improvements — Panic  of  1837 — Suspension 
of  specie  payments — Panic  of  1842 — Improvement  in  banking  methods — Illinois 
without  a  state  banking  system 76 

CHAPTER  V 
ILLEGAL  BANKING 

Currency  issued  by  the  Chicago  Marine  and  Fire  Insurance  Company — George  Smith — 

Illegal  currency  vs.  "wildcat"  notes — Interest  rates 108 

ix 


x  TABLE  OF  CONTEXTS 

CHAPTER  VI 
FREE  BANKING  SYSTEM 

Attempts  to  exclude  all  banks  from  Illinois — Establishment  of  the  Free  Banking  system 
— Bank  war — Agitation  against  illegal  currency — Legalizing  of  Smith's  bank — 
Banks  organized  up  to  1854  and  type  of  business  transacted — Illegal  loans  of  legal 
banks — Panic  of  1854 — Amendments  to  bank  law  of  1855 — Railroad  investments — 
Missouri's  internal  improvement  mania  and  its  effect  on  banks  of  Illinois — Panic  of 
1857 — St.  Louis  bankers  assist  Illinois — Amendments  of  1857 — Business  failures  of 
1858— Closing  affairs  of  the  old  state  bank  of  Illinois,  1862 115 

CHAPTER  VII 
CHICAGO  BANKING 

Earliest  commercial  transactions  in  Chicago — Guidon  S.  Hubbard— Chicago' s  first 
branch  of  the  state  bank — Closing  of  the  state  bank  in  1843 — Early  private  bankers — 
First  banking  relations  with  the  Pacific  Coast — First  woman's  department  in 
Chicago — Seth  Paine  and  his  spiritualist  bank — 1851  found  Chicago  as  the  leading 
banking  center  of  the  middle  west — List  of  banks  organized 137 

CHAPTER  VIII 
DESTRUCTION  OF  ILLINOIS  BANKS 

Status  of  banks  in  1860 — Depreciation  of  Southern  securities  after  election  of  President 
Lincoln — Civil  War — Banking  amendment  of  1861 — Adjustment  to  war  conditions 
— Local  currency  replaced  by  government  notes — Suspension  of  state  banks — 
Taxing  local  currency  out  of  existence — Loss  of  confidence  in  banks  of  Illinois — 
Expulsion  of  32  banks  from  redemption  list — Continued  depreciation  of  bonds 
securing  currency — Varying  values  of  circulating  currency — Counterfeiting — 
Efforts  to  keep  bank  notes  in  circulation — Suggestions  for  banking  reform — Liqui- 
dation of  the  Marine  Bank  of  Chicago — Values  of  state  bonds  in  1862 — Official 
statement  of  Illinois'  banks  in  1860 — Attempt  to  establish  new  banking  law — 
Anti-bank  provisions  in  constitutional  convention  of  1861 — Increasing  wealth  in 
Illinois — End  of  state  banks 149 

CHAPTER  IX 
ILLINOIS  AND  THE  NATIONAL  BANK  ACT 

Support  given  the  War  by  banks  of  Illinois — Condition  of  Federal  finances  at  outbreak 
of  the  War — Need  for  taxation — Flotation  of  state  bonds — Banking  talent  in  Illinois 
— Suspension  of  specie  payments — Wealth  of  Illinois — National  debt  situation — 
Trent  affair — National  loan  from  eastern  banks — Issue  of  "greenbacks" — Contro- 
versy over  "legal  tenders" — Postage  stamp  and  fractional  note  currency — Accept- 
ance of  government  notes  in  Illinois 173 


TABLE  OF  CONTENTS  xi 

CHAPTER  X 
NATIONAL  BANKING 

Early  plans  for  a  bond-secured  national  currency — National  Bank  Act  developed  by 
Secretary  Chase  and  Jay  Cooke — Opposition  to  the  National  Bank  Act — Its  adoption 
— Organization  of  first  national  banks — Circulation  tax  and  end  of  state  banks  of 
issue — Effect  of  national  currency  on  business — Chicago's  panic  of  1864 — Jay 
Cooke's  success  with  Government  bonds — Railroads — Canal  revival — Boom  of  1865 
— Organization  of  the  Chicago  Clearing  House  Association — Discontinuance  of 
warehouse  receipts  as  currency — First  bankers'  convention  in  Chicago— Incorpora- 
tion of  private  banks  in  Illinois — Growing  opposition  to  the  National  Bank  Act — 
Agitation  for  an  inflated  currency — Retirement  of  "greenbacks" — Resumption  of 
specie  payments  in  1879 — State  charters  for  banks  in  Illinois — Constitution  of  1870 
with  its  provision  against  banks 187 

CHAPTER  XI 
THE  CHICAGO  FIRE 

The  Fire — its  start  and  course  followed — General  destruction — Efforts  of  bankers  to 
protect  their  property — Temporary  banking  quarters  after  the  fire — Efforts  to 
re-establish  business — Opening  the  safes — Boom  following  the  fire — Actual  losses 
sustained  by  banks — Subsequent  increase  in  the  business  of  banks — Prosperity 
leading  to  over -confidence  and  panic 209 

CHAPTER  XII 
THE  PANIC  OF  1873 

General  prosperity  and  railroad  development — Over -financing  of  industries  and  rail- 
roads— Financial  stringency  during  crop  moving  season  of  1872 — Precipitation  of 
the  panic  of  1873 — Failure  of  Jay  Cooke  and  Company — Effect  of  the  Cooke  failure 
on  business  in  Chicago — Suspension  of  cash  payments  in  the  East — Chicago's 
stand  against  the  use  of  clearing  house  certificates — Subsequent  movement  of 
cash  to  Chicago — Rapid  passing  of  acute  panic — Business  depression  and  bank 
failures  continued  for  the  next  five  years — General  scarcity  of  currency — Local 
money  issues — Federal  aid — Widespread  economy  and  consequent  accumulation 
of  unused  funds — Beginning  of  agitation  for  currency  inflation 224 

CHAPTER  XIII 

MONETARY  DEVELOPMENTS  FOLLOWING 

DEPRESSION 

Illinois  as  a  stronghold  for  the  " greenbackers" — Beginning  of  the  silver  agitation- 
Passing  of  the  Bland- Allison  Bill  for  remonetization  of  silver — Savings  Bank  crash 
of  1877 — Rise  of  the  Building  and  Loan  Association — Efforts  toward  regulation  of 
savings  banks — Settlement  of  the  question  regarding  position  of  the  United  States 


xii  TABLE  OF  CONTENTS 

as  a  creditor — Panic  of  1884 — Revival  of  canal  agitation — Prosperity  of  1880  and  sub- 
sequent growth  of  banks — General  banking  law  of  1877 234 

CHAPTER  XIV 
THE  PANIC  OF  1893 

Universal  depression  of  1890 — Boom  of  1892 — Concentration  of  funds  in  large  cities — 
Panic  of  1893 — Dwiggins'  system — Run  on  the  Illinois  Trust  and  Savings  Bank — 
Issuing  of  Clearing  House  certificates — Chicago  again  remained  on  a  cash  basis — 
National  finances — Repeal  of  the  silver  purchase  act — Growth  of  the  silver  contro- 
versy— Break-down  of  banks — Savings  Bank  run — James  H.  Eckels 245 

CHAPTER  XV 
THE  CHICAGO  WORLD'S  FAIR 

Influence  of  the  Fair  on  the  panic  of  1893 — Efforts  to  secure  the  Fair  for  Chicago — 
Financing  the  proposed  exposition — Executive  organization — Issuing  bonds  beyond 
the  debt  limit — Collecting  stock  subscriptions — Difficulties  with  the  budget — 
Efforts  to  get  financial  aid  from  Congress — Columbian  half-dollars — Second  bond 
issue  floated  in  Chicago — Failure  of  the  Chemical  National  Bank — Opening  of  two 
world's  fair  branches  of  the  Northern  Trust  Company — Paying  the  debt — Effect  of 
the  Fair  on  the  development  of  Chicago 263 

CHAPTER  XVI 

PERIOD  OF  DEPRESSION   AND   THE    SILVER   CON- 
TROVERSY 

Four  years  of  depression  with  railroad,  labor,  and  other  troubles,  due  in  part  to  doubtful 
money  standard — Agitation  for  abandoning  gold  standard — Politics  and  the  silver 
agitation — Railroad  riots  of  1894 — Morgan-Belmont  Syndicate  and  return  of  con- 
fidence— Cuban  controversy — Democratic  stand  for  free  silver — History  of  the  silver 
movement — Bryan — Panic  of  1896 — Closing  of  the  Chicago  Stock  Exchange — How 
Chicago's  wheat  prices  aided  the  gold  standard — Failure  of  the  National  Bank  of 
Illinois — Improving  conditions  in  1897,  1898  and  1899 — Attempted  reversions  to 
bi-metallism — Lyman  J.  Gage — Indianapolis  Monetary  convention — Charles  G. 
Dawes'  plan  for  currency  reform — Decline  of  the  silver  party — War  with  Spain — 
Figures  on  the  Illinois  bank  situation 287 

CHAPTER  XVII 
EARLY  TWENTIETH  CENTURY 

Banking  law  of  1900— Revival  of  the  silver  party— Eventful  year  1901  with  the  formation 
of  the  United  States  Steel  Corporation— Stock  Exchange  panic— Crop  failures  and 
labor  troubles — McKinley's  death  and  break  in  copper  market — Lyman  J.  Gage — 
Business  in  1902 — Corner  in  corn — Trust  busting — Depression  of  1903  and  1904 — 


TABLE  OF  CONTENTS  xiii 

Democrats  proclaim  themselves  in  favor  of  the  gold  standard — Purchase  of  the 
National  Bank  of  North  America  by  the  Continental  National  Bank  of  Chicago — 
Failure  of  the  three  Walsh  banks — Comptrollers  of  the  Currency  supplied  by 
Illinois — Development  of  anti-capitalistic  sentiment — National  Bank  law  amend- 
ment of  1906 — Failure  of  the  Milwaukee  Avenue  State  Bank — Chicago  convention 
of  insurance  commissioners — Liquidation  of  United  States  finance  bills 320 

CHAPTER  XVIII 
THE  PANIC  OF  1907 

Conditions  leading  to  a  state  of  panic — The  banks  in  Chicago — Beginning  of  the  crisis 
in  New  York — Speculations  of  Heinze  and  Morse — Suspension  of  cash  payments — 
General  use  of  Clearing  House  Certificates — Other  means  of  meeting  emergencies — 
Chicago's  first  departure  from  cash  payments — Freedom  of  Illinois  from  bank 
failures — Termination  of  the  receivership  of  the  Third  National  Bank  of  Chicago  346 

CHAPTER  XIX 
A  PERIOD  OF  TURMOIL 

Interval  between  the  Panic  of  1907  and  the  Federal  Reserve  Act — General  interest  in 
monetary  and  banking  reform — Fight  against  monopolies  in  business — Amend- 
ments to  the  Illinois  Banking  Law — Chicago  assumed  place  in  first  rank  of  banking 
world — Citizen's  League  for  the  Promotion  of  Monetary  Legislation — Financial 
effects  of  declaration  of  war  in  Europe — Failure  of  the  Lorimer  banks  in  Chicago .  361 

CHAPTER  XX 
CURRENCY  REFORM— EMERGENCY  MEASURES 

Demands  for  banking  reform — Introduction  of  bills  by  Aldrich,  Fowler  and  Vreeland — 
The  Aldrich-Vreeland  Act  and  its  provisions — Efforts  to  organize  national  currency 
associations — Chicago's  reaction  to  these  attempts — War-time  activities  of  the 
National  Currency  Association  of  the  City  of  Chicago— Amendments  to  the  Aldrich- 
Vreeland  Act 376 

CHAPTER  XXI 
PERMANENT  NATIONAL  CURRENCY  REFORM 

The  work  of  the  National  Monetary  Commission — The  Aldrich  Plan — Carter  Glass  and 
the  Democratic  committee  on  banking  and  currency — Appearance  of  Illinois 
bankers  before  the  Senate  committee — The  Federal  Reserve  Act — Determining 
Federal  Reserve  District  boundaries — Appointing  a  representative  from  Chicago 
to  the  Federal  Reserve  Board 394 


xiv  TABLE  OF  CONTENTS 

CHAPTER  XXII 

EARLY     PERIOD     OF     THE     FEDERAL     RESERVE 

SYSTEM 

Chicago  meeting  of  the  American  Bankers  Association  group  on  currency  reform — 
Credit  for  origination  of  the  Federal  Reserve  Act  given  to  Woodrow  Wilson — Charles 
G.  Dawes  among  Chicago's  first  bankers  to  take  a  definite  stand  for  the  Federal 
Reserve  System — Opening  of  the  Federal  Reserve  Banks — Early  difficulties  with  and 
campaign  for  the  promotion  of  par  collection — Gold  Settlement  Fund — Redis- 
counting  operations — Review  of  conditions  surrounding  early  years  of  the  Federal 
Reserve  System — Illinois  divided  between  two  Federal  Reserve  districts — Quarters 
occupied  by  the  Federal  Reserve  Bank  of  Chicago — Plot  to  blow  up  the  bank — New 
building  of  the  Federal  Reserve  Bank  of  Chicago 406 

CHAPTER  XXIII 
WAR  CONDITIONS 

War  demand  for  products  of  America — Business  and  banking  activities  in  Chicago — 
Monetary  conditions — Increase  in  scope  of  national  banks — Interest  rates,  prices 
and  wages — Chicago's  "Peace  Credits" — Loan  to  China — Flotation  of  Liberty  Loans 
and  sale  of  War  Savings  Stamps 422 

CHAPTER  XXIV 
CERTIFICATES  OF  INDEBTEDNESS 

History  of  certificates  of  indebtedness  in  America  prior  to  the  World  War — Sale  during 
the  World  War  handled  by  the  Federal  Reserve  banks — Precautions  taken  to  avoid 
disturbing  the  money  market — Part  played  by  the  Federal  Reserve  Bank  of  Chicago 
— Management  of  Melvin  A.  Traylor — Certificates  of  Indebtedness  after  the  con- 
clusion of  the  World  War 435 

CHAPTER  XXV 

BANKS    IN    ILLINOIS    DURING    AND    AFTER    THE 

WAR  PERIOD 

Ruling  on  bank  capital  in  Chicago — Unprecedented  levels  reached  in  bank  clearings — 
Private  banks  abolished — Problems  following  declaration  of  peace — Boom  of  1919 
and  depression  of  1921 — Spurgin,  Fort  Dearborn  and  Milwaukee-Irving  bank  fail- 
ures— Important  bank  consolidations  in  Chicago 452 

CHAPTER  XXVI 

THE  POST-WAR  PERIOD  OF  INFLATION  AND  THE 
FEDERAL  RESERVE  BANKS 

General  conditions  during  1919  and  1920 — Discount  policy  of  the  Federal  Reserve  Board — 
Criticisms  of  currency  and  credit  inflation — The  "secret"  meeting — Relation  of  the 


TABLE  OF  CONTEXTS  xv 

Federal  Reserve  Banks  to  price  decline — Congressional  commission  of  agricultural 
inquiry — Progressive  discount  rates  established  by  the  Federal  Reserve  Bank  of  St. 
Louis — Conditions  during  1921  and  1922 467 

CHAPTER  XXVII 
THE  FEDERAL  RESERVE  IN  NORMAL  TIMES 

Place  of  the  System  in  times  of  normal  finance — Open  market  operations — Conditions 
in  1923, 1924  and  1925 — Evaluating  the  System  after  eleven  years — Statistical  service 
— The  System  is  approved — Increased  confidence — Stabilized  interest  rates — Process 
for  expansion  and  contraction  of  currency — Development  of  commercial  paper  and 
bankers'  acceptance  markets — Advantages  and  criticisms  of  the  plan  for  check 
collection 486 

CHAPTER  XXVIII 
CHICAGO    CLEARING   HOUSE    ASSOCIATION 

Organization  of  the  Chicago  Clearing  House,  1865 — Custom  of  trading  balances — Clear- 
ing after  the  fire  of  1871 — Results  of  the  Panic  of  1873 — Incorporation  in  1882 — Use  of 
Clearing  House  Certificates  avoided  in  1873  and  1893 — Reorganized  as  a  voluntary 
association,  1901 — Men  important  in  Clearing  House  affairs — Clearing  House 
examination  first  installed  in  Chicago — Certificates  used  in  1907 — The  Great  War — 
Early  clearing — Growth  of  the  Association 502 

CHAPTER  XXIX 
CHICAGO  STOCK  EXCHANGE 

Organization  of  the  first  Stock  Exchange  in  Chicago  in  1865 — Second  Stock  Exchange, 
1869— Chicago  Mining  Board,  1879 — Present  Stock  Exchange  organized,  1882 — 
Development  of  local  industrial  enterprises — First  Stock  Exchange  Building — 
Diamond  Match  pool — Growth  of  the  Chicago  Stock  Exchange 519 

CHAPTER  XXX 
INVESTMENT  BANKING  IN  CHICAGO 

Mortgage  market  established  as  early  as  1835 — Investment  bond  houses  started  about 
1882 — First  issue  made  payable  in  Chicago,  1892 — Chicago  investment  houses  in 
other  cities — Those  still  in  existence  representing  outgrowths  of  two  original  houses 
— Early  efforts  to  develop  a  bond  market — Cattle  paper — Farm  loan  securities — 
Customer  ownership  plan 536 

CHAPTER  XXXI 
BANKERS'  ORGANIZATIONS 

Chicago's  first  bankers'  convention — American  Bankers'  Association — Illinois  Bankers' 
Association — Chicago  and  Cook  County  Bankers'  Association — American  Institute 
of  Banking — Investment  Bankers'  Association — Bankers'  Club 551 


xvi  TABLE  OF  CONTENTS 

CHAPTER  XXXII 
PRIVATE  BANKING 

Position  of  private  banks — Unscrupulous  use  of  private  banking  privilege — Difficulties 
confronting  private  bankers — Efforts  to  secure  proper  regulation — Difficulties  with 
banks  in  suburbs  of  Chicago — Statistics  on  private  banking — Bank  runs — One  bank 
saved  with  Russian  Rubles — Chicago  conference  for  the  regulation  of  banks — Buck- 
Austin  Bill  passed  in  1917 — Closing  of  one  of  Chicago's  most  respected  private  banks 
— Effect  of  regulation  on  establishment  of  state  banks 567 

CHAPTER  XXXIII 
DEVELOPMENT  OF  BANKING  LAW 

Illinois  banking  law  and  its  amendment  of  1903 — Cases  of  Spalding,  Dreyer  and  Paulsen 
— Securing  release  on  an  amendment  made  after  conviction — Paisley,  Lorimer  and 
Meadowcroft  cases — Amendments  of  1924 580 

CHAPTER  XXXIV 
MEN— DEVELOPERS  OF  FINANCIAL  ILLINOIS 

Gurdon  S.  Hubbard — Alexander  Mitchell — William  F.  Coolbaugh — Solomon  A.  Smith — 
Samuel  M.  Nickerson — Lyman  J.  Gage — James  B.  Forgan — Byron  L.  Smith — John 
J.  Mitchell— William  H.  Mitchell— Levi  Z.  Letter— Marshall  Field— Samuel  W. 
Allerton — Norman  B.  Ream — Edward  F.  Swift — Edward  Morris — Philip  D.  Armour 
— Cyrus  Hall  McCormick — George  M.  Pullman — James  Laurence  Laughlin.  .  .  .588 

CHAPTER  XXXV 
CURRENCY  AND  CREDIT 

Early  data  difficult  to  secure — Panics  traced  to  inelastic  credit  currency — Relations 
between  business  fluctuations  and  money  rates — Necessity  for  shipping  currency 
from  one  section  to  another — Stabilizing  effect  of  National  Bank  Act — Currency 
and  credit  problems  solved  by  the  Federal  Reserve  System — Effect  of  bankers' 
acceptance  market  on  credit — Illinois'  stand  for  sound  banking 607 

APPENDIX 624 

BIBLIOGRAPHY 736 

INDEX 739 


LIST  OF  ILLUSTRATIONS 

Francis  Murray  Huston Frontispiece 

Andrew  Russel   v 

Population  Density  in  Successive  Years xxii 

Map  Showing  Railroad  Development  in  Illinois xxvii 

Alexander  Hamilton 33 

La  SaUe 37 

Starved  Rock 41 

Arrival  of  the  Pioneers 46 

Xinian    Edwards -49 

Building  in  which  Territorial  Legislature  of  Illinois  First  Met  at  Kaskaskia, 

1816-1818   49 

First  Safe  Used  in  First  Bank  of  Illinois,  Shawneetown,  1816 53 

Home  of  John  Marshall 57 

Old  Cairo  Bank  and  Old  Land  Office 57 

Coming  of  the  Whites  to  Edwardsville 61 

Site  of  Old  Kaskaskia 63 

State  Capitol  at  Vandalia.  1820-1839 67 

Keys  of  Old  Iron  Safe 67 

Xotes  of  Illinois'  First  Banks 71 

Map  of  Early  Illinois.  . .  .■ 77 

Map  of  Chicago  in  1830 81 

Chicago  in  1831 85 

Shawneetown  Bank,  Built  in  1840 89 

State  Bank  of  Illinois,  Springfield,  1835 89 

John   Marshall 93 

Governor  Thomas  Ford 97 

Canal   Note 101 

Canal    Xotes 105 

Traders  on  South  Water  Street  a  Century  Ago 107 

Alexander   Mitchell 109 

George   Smith 109 

Governor  Augustus  C.  French 117 

J.  Young  Scammon 121 

Chicago  Marine  Bank 121 

Early  Bank  Xotes 125 

Miscellaneous  Xotes 129 

Chicago  in  1857 133 

John  H.  Kinzie 139 

Gurdon  S.  Hubbard 143 

William  H.  Brown  and  Wife 143 

xvii 


xviii  LIST  OF  ILLUSTRATIONS 

Seth  Paine 's  Bank  Notes 148 

Abraham  Lincoln 151 

The  Stump  Tail  Guard  Who  Cancelled  Wild  Cat  Money 157 

Clark  Street  Between  Lake  and  Randolph,  Chicago,  1857 163 

Chicago  Chamber  of  Commerce,   1861 163 

Stage  Coach  Arriving  at  Sherman  House,  Chicago,  About  1860 169 

Letter  of  Introduction  of  A.  C.  Badger  by  Abraham  Lincoln 175 

Governor  Richard   Yates 183 

La  Salle  Street,  Chicago,  About  the  Time  of  the  Civil  War 183 

Lyman    J.    Gage 189 

Salmon   P.    Chase 189 

Jay  Cooke 189 

Second  Building  of  the  First  National  Bank,  Chicago 203 

Union  National  Bank,  Chicago 203 

Map  of  Chicago  Showing  All  Extensions  up  to  the  Time  of  the  Fire 211 

Clark  and  Randolph  Streets,  Chicago,  Before  the  Fire 213 

Clark  and  Randolph  Streets,  Chicago,  After  the  Fire 213 

Ruins  of  the  Marine  Bank,  Chicago 215 

Opening  the  Vaults  of  the  Merchants  Loan  and  Trust  Company,  Chicago, 

After- the  Fire 215 

Ruins  of  the  First  National  Bank,  Chicago 217 

Clark  Street  Bridge,  Chicago,  After  the  Fire 217 

Safes  Piled  on  Dearborn  Street,  Chicago 219 

Cooling  Off  Safe  Taken  From  Ruins  of  Fifth  National  Bank,  Chicago 219 

Ogden  Residence,  Chicago,  After  the  Fire 221 

Frame  Houses  Which  Stood  on  Monroe  at  La  Salle  Street,  Chicago,  Before 

the  Fire 221 

Fighting  the  Fire  at  the  Courthouse,  Chicago 223 

James  B.  Forgan 259 

Men  Prominent  in  Securing  the  World's  Fair  for  Chicago 267 

Edward   T.   Jeffery 267 

Mayor  De  Witt  C.  Cregier,  Chicago 267 

Harlow  N.  Higginbotham 267 

Thomas  B.  Bryan 267 

Branch  Office  of  Northern  Trust  Company  on  the  Midway,  AVorld's  Fair. . .  279 
Facsimile  of  Check  With  Which  Final  Indebtedness  of  Exposition  Bonds 

Was  Paid 283 

Office  of  Northern  Trust  Company  in  the  Administration  Building,  World's 

Fair,  Chicago 283 

The  World's  Columbian  Exposition  of  1893 286 

Free  Silver  Cartoon  From  ' '  Coin 's  Financial  School " 289 

Free  Silver  Cartoon  Used  During  the  Sixteen  to  One  Campaign 301 

Sound  Money  Cartoons  Used  During  the  Free  Silver  Campaign 301,  313 

John  R,  AValsh's  First  Place  of  Business  in  Chicago 335 

Comptrollers  :  Lacey,  Dawes,  Eckels  and  Ridgely 341 

Certificates  Used  by  Chicago  Clearing  House  Assoeiation 357 


LIST  OF  ILLUSTRATIONS      .  xix 

Edwin  A.  Potter 365 

Elbert  H.  Gary 365 

Federal  Reserve  Bank  Building  in  Chicago 419 

Melvin  A.  Traylor 444 

Chart  Showing  Trend  in  Illinois  Member  Bank  Borrowings  During  Post- 
war Price  Readjustment 469 

Official  Organization,  Federal  Reserve  Bank  of  Chicago,  1923 487 

Clearing  House  Committee,  During  Panic  of  1907 511 

First  Chicago  Stock  Exchange 525 

Interior  of  Chicago  Stock  Exchange 531 

Communities  Served  by  Public   Service  Corporations   Selling  Their   Own 

Securities  on  the  Customer  Ownership  Plan,  1925  (Map) 547 

Orson  Smith 593 

Marshall  Field 593 

Norman  B.  Ream 593 

Philip  D.  Armour 593 

Samuel  M.  Nickerson 601 

Samuel  W.  Allerton 601 

Cyrus  H.  McCormick 601 

New  York  Exchange  at  Chicago  (Chart) 609 

General  Business  From  1890  Through  1925  (Chart) 609 

Money  Rates  at  Chicago  (Chart) 616 

Average  and  Spread  of  Interest  Rates  on  Commercial  Paper  (Chart) 619 


From  The  Geography  of  Illinois  hy  D.    C.   Ridtjley. 
Courtesy   University  of  Chicago  Press 


POPULATION  DENSITY  IN  SUCCESSIVE  YEAES 
This  series  of  maps   shows  the  steady  and  rapid  growth  of  Illinois   in  population  for 
more    than  a  century.      The   1910   map   is  drawn   on  county   lines   while   previous   maps   show 
regions  of  population  without  reference   to   county  lines. 


INTRODUCTION 

Geography  and  economics  have  played  a  vital  part  in  the  develop- 
ment of  the  Illinois  we  know  today.  Her  greatness  is  largely  the 
result  of  a  strategic  location  between  the  Great  Lakes  and  the  Mis- 
sissippi River,  thereby  placing  her  in  the  path  of  early  exploration 
as  well  as  in  a  position  to  receive  the  full  tide  of  emigration  from 
New  England  and  the  Middle  Atlantic  states,  and  enabling  Chicago 
later  to  play  her  major  role  as  the  market  place  for  the  exchange  of 
eastern  and  western  wares.  On  the  south  and  east,  the  Ohio  and  the 
Wabash  were  natural  highways  which  carried  the  emigrants  from 
the  more  settled  states,  while  the  Mississippi  brought  many  north- 
ward from  New  Orleans. 

Illinois,  with  a  land  area  of  roughly  56,000  square  miles,  has 
boundaries  totaling  in  length  nearly  1,400  miles,  some  thousand  of 
which — or  seventy-five  per  cent — are  natural  water  frontiers  com- 
prising Lake  Michigan,  the  Mississippi,  the  Ohio,  and  the  Wabash, 
while  only  400  miles  are  arbitrary  lines  drawn  by  our  forbears  when 
the  "Illinois  Country"  became  a  state  in  1818.  From  geologic  devel- 
opments, especially  the  glacial  epochs,  the  state  derived  her  prairies 
with  well-drained  soil  admirably  adapted  to  agriculture.  Timber 
with  which  the  pioneer  built  his  houses  and  fences  generously  inter- 
spersed the  level  prairies;  wild  game  in  abundance  furnished  the 
impetus  for  early  trade  in  furs  and  constituted,  too,  an  important 
factor  in  feeding  the  populace  until  agriculture  gained  its  foothold 
as  the  essential  interest  of  the  settlers. 

The  pioneers  from  the  south  and  southwest  were  hunters  rather 
than  tillers  of  the  soil.  In  the  southern  part  of  the  state  they  found 
abundant  woodland,  so  that  settlements  were  confined  largely  to 
the  forests  and  along  wooded  banks  of  streams.  This  preference  for 
forested  land,  the  outgrowth  mainly  of  unfamiliarity  with  conditions 
of  prairie  life,  for  many  years  kept  the  balance  of  population  south- 
ward, leaving  the  northern  part  of  the  state  relatively  unoccupied. 
(See  figure  1)  The  expense  and  difficulty  of  reaching  Illinois  from 
the  eastern  seaboard  was  also  a  factor  in  delaying  settlement  of  the 

xxiii 


xxiv  INTRODUCTION 

northern  portions.  The  rapid  development  of  steam  navigation 
on  the  Mississippi  and  Illinois  rivers  in  the  late  twenties  facilitated 
the  northward  movement  of  settlers,  and  when  a  few  years  later 
steamboats  in  large  numbers  plied  the  Great  Lakes,  emigrants  from 
New  England  and  the  Middle  Atlantic  states  awoke  to  the  possi- 
bilities of  utilizing  the  Erie  Canal  to  Buffalo  (opened  in  1825)  and 
thence  to  more  westward  lake  ports  by  steam.  In  1845  steam  vessels 
carried  97,736  passengers  from  Buffalo,  over  20,000  of  whom  landed 
at  Chicago,  then  as  now  the  gateway  to  northern  Illinois.  From 
"a  dirty  village  of  twenty  hamlets"  in  1834,  Chicago  became  a  town 
of  4,479  in  1840  and  of  28,269  in  1850. 

The  movement  of  settlers  from  New  England  and  the  Middle 
Atlantic  states  was  influenced  greatly  by  factors  outside  Illinois.  A 
shift  in  economic  conditions  was  taking  place  in  the  east.  Shipping 
as  a  New  England  industry  was  dwindling  in  importance,  and  the 
rising  tide  of  emigration  from  Europe  was  displacing  many  native 
workers  in  New  England  mills  and  factories  with  foreign  labor.  The 
difficulties  of  agriculture  on  the  rocky  hills  made  the  open  prairies  of 
Illinois  and  other  western  states  a  haven  of  refuge  for  the  farmer. 
The  lowlands  were  occupied  and  sheep  and  cattle  raising  had  replaced 
agriculture  extensively  in  the  upland  back  country,  so  that  many  east- 
ern farmers  sold  their  holdings  to  stock  growers  and  moved  west. 
The  panic  of  1837,  in  addition  to  crop  failures,  augmented  the  wide- 
spread discontent.  Letters  home  from  early  settlers  enthusiastically 
described  western  lands,  and  tens  of  thousands  began  life  anew  in 
Illinois. 

In  central  Illinois  this  New  England  element  in  the  population, 
entering  the  state  through  Chicago  and  pushing  southward  along 
the  Illinois,  met  the  pioneers  from  the  southern  states;  the  latter, 
arriving  first,  had  followed  the  woodland  streams,  while  geographic 
conditions  naturally  brought  the  northern  settlers  into  the  region. 
Ere  long,  the  northerners  outstripped  the  earlier  pioneers  in  number, 
largely  because  of  the  development  of  lake  navigation.  These  sons 
of  New  England  and  the  Yankees  were  in  general  better  equipped 
financially  and  endowed  with  greater  energy  and  other  pioneering 
qualities,  fostered  probably  by  rigorous  years  wresting  a  livelihood 
from  the  grudging  hills  of  New  England.  It  is  not  strange,  then, 
that  Illinois  rapidly  took  on  the  characteristics  of  a  distinctly  north- 
ern community. 

Until  the  coining  of  the  railroads,  the  canals  and  waterways  were 


INTRODUCTION  xxv 

responsible  for  most  of  the  transportation  in  Illinois.  As  already 
pointed  out,  three  rivers  and  Lake  Michigan  compose  the  major 
portion  of  her  boundaries,  while  for  the  pioneers  the  Illinois  was  a 
great  inland  waterway  between  the  Mississippi  and  Lake  Michigan. 
The  development  of  the  steamboat  was  significant  in  the  economic 
history  of  the  early  years.  From  1835  to  1855  the  steam  driven 
vessel  was  supreme  on  the  Illinois,  and  on  the  Mississippi  it  held  a 
dominant  place  over  approximately  the  same  period.  In  1811  the 
first  steamboat  plied  the  Ohio  and  Shawneetown  near  its  junction 
with  the  Wabash  owed  its  early  importance  to  river  commerce,  being 
for  many  years  the  leading  city  in  eastern'  Illinois. 

Throughout  the  United  States  the  years  from  1816  to  1837  were 
devoted  to  internal  improvements,  a  large  part  of  which  took  the 
form  of  canal  construction.  Illinois'  outstanding  contribution  to  the 
country-wide  craze  for  canals  was  the  Illinois-Michigan,  opened  in 
1848  after  years  of  struggle  and  labor.  In  length  over  100  miles, 
it  extended,  and  still  does,  though  now  an  almost  forgotten  ditch, 
from  Peru  and  La  Salle  on  the  Illinois  to  the  South  Branch  of  the 
Chicago  River.  '  In  this  waterway  was  realized  the  dream  of  Joliet 
voiced  in  1673,  to  connect  the  waters  of  Lake  Michigan  with  the 
Mississippi. 

The  effects  of  the  canal  were  immediate  and  manifold,  influenc- 
ing to  a  high  degree  the  development  of  the  entire  country  it  tra- 
versed. New  markets  were  opened  to  the  farmers  of  central  Illinois, 
but  more  signficant  still  in  the  economic  life  of  the  state  was  the  fact 
that  with  the  canal's  opening,  farmers  were  afforded  a  choice  of 
markets,  St.  Louis  to  the  south  via  the  Illinois  and  Mississippi,  or 
through  the  canal  to  Chicago.  The  prices  offered  for  produce  thus 
became  the  controlling  factor  in  the  movement  of  trade.  For  three 
years  following  the  opening  of  the  canal,  the  higher  prices  prevailing 
in  St.  Louis  brought  most  of  the  grain,  meat,  and  flour  to  that  city, 
but  thereafter  the  movement  was  toward  Chicago,  which  in  the  early 
fifties  became  the  greatest  grain  and  lumber  market  in  the  world. 
The  canal  facilitated  markedly  the  movement  of  lumber,  particularly 
pine  and  cedar  from  the  forests  of  Michigan  and  Wisconsin,  prac- 
tically all  of  that  destined  for  the  prairie  country  passing  through 
Chicago  and  the  Illinois-Michigan  canal,  instead  of  moving  by  wagon 
in  limited  quantities  as  in  the  earlier  years.  Salt,  agricultural  imple- 
ments, and  general  merchandise  constituted  the  other  main  com- 
ponents of  the  canal's  traffic.      The  population  of  Chicago  increased 


xxvi  INTRODUCTION 

from  16,859  in  1847  to  60,652  in  1853.  Despite  the  gradual  elimi- 
nation of  water-borne  commerce  after  1850  by  the  expansion  of 
railroads,  the  Illinois-Michigan  canal  was  no  inconsiderable  carrier 
until  the  eighties,  since  when  its  usefulness  has  dwindled  to  almost 
nothing. 

The  railroads  pushing  westward  from  Chicago  brought  settlers 
into  the  prairies,  hitherto  avoided  because  of  the  yet  unsolved  prob- 
lems of  transportation  and  markets.  During  the  decade  from  1850 
to  1860  mileage  in  Illinois  grew  from  110  to  2,867,  a  greater  volume 
of  construction  than  in  any  other  state  during  the  same  period,  and 
surpassing  by  far  that  of  Michigan,  Wisconsin,  and  Iowa  combined. 
Here  again  geography  and  geology  favored  Illinois;  topography 
rendered  railroad  building  easy  and  rapid,  for  lines  could  be  put 
through  in  almost  any  direction  on  the  level  surface  of  the  upland 
prairies,  without  encountering  serious  natural  handicaps.  By  1854 
seventy-four  trains  a  day  served  the  Upper  Mississippi  and  the 
whole  Northwest. 

Chicago,  by  virtue  of  her  location  at  the  lower  end  of  Lake 
Michigan  where  nature  forced  the  railroads  from  the  west  and  north- 
west to  converge,  was  thus  early  destined  to  become  a  great  railroad 
center.  The  country  tributary  to  the  city  extends  in  several  direc- 
tions with  no  natural  barriers ;  the  Great  Lakes  afford  a  cheap  route 
east  for  midwestern  produce,  thereby  encouraging  railroads  to  build  to 
Lake  Michigan  in  order  to  supplement  the  natural  waterway  in  the 
carrying  trade  between  the  east  and  the  west.  By  1856,  thirteen  roads 
with  104  trains  each  day  connected  Chicago  with  the  Mississippi  at 
Galena,  Rock  Island,  Quincy,  Alton,  Cairo,  and  St.  Louis.  In  the 
southern  part  of  the  state  railroad  construction  was  complicated  by 
rival  enterprises  for  eastern  extensions  from  St.  Louis  and  Alton. 
In  the  latter  part  of  the  decade  (1850-1860)  two  lateral  lines  were 
completed,  both  of  which  favored  St.  Louis  at  the  expense  of  Alton. 
The  completion  of  the  Ohio  and  Mississippi  from  Illinoistown  (now 
East  St.  Louis)  to  Vincennes  in  1855,  and  to  Cincinnati  two  years 
later,  was  especially  advantageous  to  St.  Louis. 

The  Illinois  Central,  first  of  the  land  grant  railroads,  received 
some  2,500,000  acres  of  jmblic  land  in  Illinois  from  the  Federal  gov- 
ernment to  encourage  settlement,  and  to  foster  the  sale  of  other 
public  land  then  unsalable  because  of  poor  transportation  and  conse- 
quent inability  to  market  produce.  The  construction  of  this  road 
served  to  connect  LaSalle,  the  western  end  of  the  Illinois-Michigan 


e*/*l<N«TO 


Railroad  Development 
1850  -  I860 


Railroads,  1850 
Railroads,  18SS 


Railroads,  1860 


(  From  Centximial  History  of  Illinois,  Volume  III. 
Courtesy   of   Illinois   OfentennlaJ   Commission) 

MAP  SHOWING  RAILROAD  DEVELOPMENT  IN  ILLINOIS 


INTRODUCTION 


XXIX 


canal,  with  Cairo  at  the  southern  extremity  of  the  state,  thus  tying 
the  more  fertile  agricultural  areas  to  the  north  to  those  less  favored 
in  the  southern  counties. 

The  influence  of  Illinois'  foremost  industry,  agriculture,  extends 
to  nearly  every  phase  of  her  economic  life.  Favorable  soil,  temper- 
ate climate,  and  a  population  drawn  largely  from  races  readily  adapt- 
able to  agricultural  pursuits,  combined  with  transportation  facilities 
to  carry  her  produce  to  far  distant  markets,  have  brought  the  state 
to  her  prime  position  in  agriculture.  The  agricultural  implement 
industry  has  developed  in  response  to  the  needs  of  the  farmers  for 
machinery  of  the  latest  and  most  efficient  type.  The  great  packing 
industry  of  Chicago  and  other  Illinois  cities  owes  its  existence  and 
growth  to  the  location  of  the  state  in  a  region  suitable  to  large-scale 
production  of  hogs,  cattle,  and  sheep,  in  conjunction  with  corn  and 
other  livestock  food.  The  farms  of  this  state  furnish  a  large  por- 
tion of  the  raw  materials  for  Illinois  factories  and  her  dairy  interests 
supply  vast  quantities  of  milk,  cream,  butter,  and  cheese  for  the  large 
numbers  of  city  dwellers  in  Chicago  and  other  industrial  centers. 

Illinois'  manufacturing  activities  have  been  developed  in  little  more 
than  a  century  to  cover  an  amazingly  wide  range  of  products,  and 
include  about  120  different  lines  of  industry.  Most  of  these  are 
represented  in  Chicago  alone,  twenty-five  of  them  to  an  outstanding 
degree,  including  meat  packing  with  its  by-products,  iron  and  steel, 
printing  and  publishing,  agricultural  implements,  railway  cars,  and 
others  of  lesser  magnitude.  Many  Illinois  cities  have  become  famous 
for  their  particular  products,  as  Peoria  for  her  distilleries,  Joliet  and 
South  Chicago  for  steel,  Elgin  for  watches,  Quincy  in  the  production 
of  stoves  and  furnaces,  and  Rockford  for  a  diversity  of  manufacturing. 

The  coal  deposits  of  Illinois,  first  discovered  by  Father  Hennepin 
near  Ottawa,  LaSalle  County,  in  1670,  have  been  a  vital  factor  in 
her  industrial  development.  Mined  for  commerce  for  the  first  time 
in  1810  production  has  risen  steadily  through  the  years,  and  now 
Illinois  ranks  high  among  coal  producing  states.  Natural  gas  and 
petroleum  are  also  important  factors  in  Illinois  history;  the  production 
of  the  latter  was  negligible  until  1905,  when  output  increased  by 
leaps  and  bounds  for  the  five  succeeding  years.  Recently  a  decline 
has  taken  place  but  advances  in  studies  of  the  state's  underlying  rock 
structure  have  caused  many  to  believe  that  further  development  of 
the  oil  industry  is  a  possibility. 

Owing  to  the  discovery  of  lead  in  that  region,  the  northwest  corner 


xxx  INTRODUCTION 

of  the  state  was  settled  earlier  than  any  other  portion  of  the  area  lying 
between  the  Illinois  and  the  Mississippi.  Galena,  near  where  these 
deposits  as  well  as  some  zinc  were  located,  attained  an  early  importance 
far  in  excess  of  that  enjoyed  by  the  struggling  village  of  Chicago. 
Zinc  is  now  the  more  important  of  the  two  metals  in  point  of  pro- 
duction, though  in  the  early  days  lead  took  precedence.  While  the 
zinc  output  is  small,  the  coal  resources  of  Illinois  have  given  rise  to 
many  zinc  smelters  at  various  points  readily  accessible  to  coal  fields, 
so  that  the  state  is  among  the  leaders  in  zinc  smelting. 

It  is  fitting,  then,  that  this  work  should  be  calledl  "Financing  an 
Empire,"  for  Illinois  is  nothing  less  than  that.  The  foresight  and 
ability  of  her  financiers  and  empire  builders  have  made  possible 
the  utilization  of  natural  resources  of  unparalleled  abundance;  these 
qualities  have  aided  in  the  development  of  the  state's  complex  manu- 
facturing industries;  they  have  built  her  railroads  that  she  might 
send  the  fruits  of  her  industries  to  all  parts  of  the  world.  A  history 
of  the  hopes,  courageous  struggles,  defeats,  and  the  triumphs  over 
seemingly  insurmountable  obstacles  of  these  leaders  of  expansion  and 
progress,  these  financial  custodians  of  the  state's  well  being,  must 
indeed  be  of  interest  to  every  citizen  of  our  commonwealth. 


CHAPTER  I 
PRE-BANKING  DAYS 

Four  banking  periods — Financial  transactions  with  Indians — La  Salle — Starved  Rock, 
the  first  trading  post  in  Illinois — Fort  St.  Louis,  the  first  permanent  village — 
Destruction  of  trading  started  by  La  Salle — Mississippi  bubble — First  big  business 
venture — Land  speculation. 

Illinois'  financial  history  divides  itself  naturally  into  four  periods 
or  epochs,  although  technically,  the  first  of  these,  primitive  trading 
with  the  Indians,  contained  little  that  could  he  called  hanking.  This 
barter  and  exchange  was  so  crude  that  about  the  only  banking  ele- 
ment lay  in  the  financing  of  those  early  traders  and  commercial  emis- 
saries whose  courage  and  love  for  adventure  led  expeditions  into  the 
great  wilderness  to  exchange  food,  clothing,  firearms,  ammunition, 
and  trinkets  for  furs  to  send  back  to  Spain,  France,  and  England  for 
conversion  into  garments.  Necessarily  some  funds  and  more  credit 
were  required  to  finance  these  explorations  and  trading  expeditions 
and,  while  credit  and  money  were  provided  through  the  banking 
institutions  existing  in  Europe  and  in  the  older  settlements  in  America, 
yet  no  history  of  banking  in  Illinois  could  be  complete  without  some 
reference  to  the  pioneer  days  of  marketing  these  native  products  of 
the  middle  west. 

We  are  concerned  in  this  financial  history  with  the  origin  of  these 
aborigines  only  insofar  as  they  have  a  bearing  on  subsequent  develop- 
ments. In  these  early  periods  the  trading  carried  on  between  men 
and  between  Indian  tribes  was  limited  to  a  barter  and  trade  exchange 
of  the  unnecessary  things  for  those  more  useful  for  individual 
purposes. 

Not  until  the  definite  settlement  of  Europeans  on  American  soil 
did  the  real  need  come  for  something  more  than  the  crude  tribal 
barter,  and  trade  methods  began  to  develop.  While  Columbus  opened 
the  way  for  a  world-wide  commerce,  it  required  the  efforts  of  those 
who  followed  and  who  took  up  the  burden  of  economic  struggle  in 
the  New  World,  to  disclose  that  beyond  the  landing  place  of  Co- 
lumbus in  1492,  lay  not  the  Indies  (East)  which  he  had  set  out  to 
find  by  a  western  sea  route,  but  a  continent  abounding  in  natural 

31 


32  FINANCING  AN  EMPIRE 

resources  of  untold  value  to  future  generations,  and  to  put  these 
natural  gifts  to  their  fullest  use  in  a  commercial  way. 

The  second  period  involved  essentially  the  problem  of  marketing, 
the  bringing  together,  economically  speaking,  of  the  pioneer  who  had 
settled  in  the  vast  territory  to  the  west  and  south  of  the  Great  Lakes, 
and  the  consumer  of  his  products.  In  this  period  we  find  in  use  only 
crude  methods  of  exchange  and  much  of  unfair  exploitation,  which 
of  course  tended  to  breed  distrust.  Gradually,  however,  credits  were 
built  up  in  one  section  of  the  country  and  obligations  were  created 
in  another  section  remotely  situated,  with  no  means  of  exchange  to 
permit  drawing  on  these  credits  for  payment  of  debts.  Efforts  to 
work  out  a  system  of  organized  banking  were  crude  and  conducted  on 
unsound  methods  and  were  interspersed  with  illegal  and  "wildcat" 
banking  practices  and  currency  issues.  In  this  period  the  state  inter- 
ceded on  popular  demand  and  sought  to  curtail  "wildcat"  banking 
through  the  establishment  of  state  banks.  However,  this  proved  only 
of  temporary  benefit  because  of  the  creeping  in  of  unsound  principles 
and  inadequate  management,  and  consequently  the  panic  of  1857  and 
the  Civil  war  period  immediately  following,  found  business  so  handi- 
capped from  a  lack  of  banking  facilities  that  Congress  was  compelled 
to  establish  federal  control  of  currency  issues  and  to  provide  a  na- 
tional banking  system  that  would  make  interstate  commerce  less 
hazardous  and  facilitate  government  financing  of  the  Civil  war. 

The  third  natural  division  of  Illinois  financial  history  was  largely 
concerned  with  the  establishment  of  the  national  banking  system, 
federal  control  of  currency  issues,  and  the  establishment  of  state  bank- 
ing through  the  chartering  of  local  state  banks  and  trust  companies 
— a  period  when  there  was  developed  the  American  banking  system 
composed  of  independent  banks  under  federal  or  state  supervision. 
This  American  banking  system  contained  conflicting  and  competitive 
forces,  owing  largely  to  lack  of  co-ordination. 

The  fourth  period  embraces  the  development  of  reserve  banking 
which  sought  to  knit  together  the  various  classes  of  incorporated  banks, 
federal  and  state,  into  one  comprehensive  system  in  which  reserves 
were  mobilized  and  credit  further  decentralized — a  system  calculated 
to  provide  ample  currency  in  times  of  stress  by  making  short-time, 
self-liquidating  paper  held  by  the  individual  banks  convertible  into 
reserve  notes  through  rediscount,  thus  averting  money  stringency 
and  much  of  the  unpleasantness  which  had  previously  been  experi- 
enced periodically  because  of  abnormal  demand  from  depositors  im- 


ALEXANDER  HAMILTON 

As  Secretary  of  the  Treasury  under  the  administration  of  Washington,  founded  the  first 

United  States  bank.     The  laws  controlling  this  institution  are  fundamental  and  are  forces 

today  in  modern  banking.      (See  page  48). 


HISTORY  OF  BANKING  IN  ILLINOIS  35 

pelled  by  nervousness  or  fear.  This  era  sees  the  working  out  of  a 
closer  co-ordination  of  banking  units  and  has  created  a  system  predi- 
cated on  the  best  practices  in  other  countries  of  the  world  and  suffi- 
ciently efficient  to  meet  the  needs  of  this  country,  as  was  demonstrated 
during  the  World  war  and  in  the  period  of  readjustment  that  fol- 
lowed; it  embraces  current  history,  in  which  the  Federal  reserve 
banks  were  organized,  the  war  financing  accomplished,  and  business 
readjusted  to  more  nearly  normal;  it  embraces  the  period  of  extend- 
ing financial  assistance  to  the  less  fortunate  nations  of  the  world 
whose  fiscal  systems  had  broken  down  under  the  demoralized  condi- 
tions of  credit  and  industry  emanating  from  the  war;  it  embraces 
also  the  problems  of  financing  business  and  a  rapidly  expanding  in- 
ternational commerce,  the  treasury  operations  to  meet  the  national 
debt,  and  the  return  of  European  countries  to  a  gold  standard;  in 
fact,  it  embraces  the  various  financial  operations  entailed  in  a  return 
to  normalcy  of  a  world  badlv  demoralized  by  the  devastations  of  war. 
Much  remains  to  be  done,  it  is  true,  but  what  has  been  accomplished 
is  history  and  should  be  recounted  here  insofar  as  Illinois  and  her 
financial  and  commercial  interests  have  participated. 

The  first  recorded  financial  transactions  of  this  territory  were 
those  bits  of  barter  carried  on  with  the  Indians.  Land  was  plentiful, 
the  provisions  of  the  white  men  were  not,  so  perhaps  the  trades  of 
the  time  were  not  always  as  unjust  as  it  may  seem  when  large  tracts 
of  cultivated  fertile  fields  and  thousands  of  dollars  worth  of  valuable 
hides  and  furs  were  bought  at  the  cost  of  small  amounts  of  intoxicat- 
ing liquor,  bright  but  inexpensive  strings  of  beads,  gaudy  knick- 
knacks,  cheap  firearms,  or  bits  of  gay  cloth.  To  be  sure,  the  Indians 
had  made  their  homes  for  many  a  generation  on  those  very  fields,  ap- 
parently so  lightly  given  up.  Here  their  tribal  traditions  had  grown, 
their  dead  were  buried,  and  their  livelihood  earned,  through  severe 
struggles  with  a  tough  turf  and  thick  forests.  Fields  which  had  been 
won  with  but  the  crudest  of  implements,  and  which  were  now  to  be 
worked  with  comparative  ease,  could  not  be  given  up  lightly.  Per- 
haps the  cheap  trinkets  of  the  white  man  really  were  worth  so  great 
a  price  to  savages  who  had  never  known  such  treasures.  But,  whether 
these  dealings  may  be  justified  or  not,  they  were  financial  transac- 
tions and,  as  such,  the  first  known  in  historic  Illinois. 

The  Spaniards  were  the  first  Europeans  to  penetrate  the  great 
Middle  West;  their  craft  went  far  up  the  Mississippi  from  the  south. 
Later  the  French  and  English  were  to  make  settlements — the  one  in 


36  FINANCING  AN  EMPIRE 

Canada  and  the  other  in  the  east,  thence  to  find  their  way  into  the  Mis- 
sissippi, the  Great  Lakes,  and  the  Ohio  River  which  together  supply 
Illinois  so  adequately  with  highways  of  transportation.  It  was  La 
Salle,  a  Frenchman,  who  was  to  become  the  first  promoter  of  big  busi- 
ness in  the  west. 

La  Salle,  well  educated,  who  had  come  from  the  Jesuit  schools, 
the  best  then  to  be  had,  was  not  fitted  for  the  life  of  a  farmer,  there- 
fore his  constant  desire  to  explore  and  push  on  into  the  wilderness. 
La  Salle,  too,  was  filled  with  the  spirit  of  romance  and  listened  with 
keen  interest  to  the  tales  of  Indians,  whose  language  he  had  learned. 
Tales  of  the  "Beautiful  River" — actually  the  Ohio — suggested  to  him 
a  probable  route  to  China  and  the  riches  of  the  East  which  it  was  still 
expected  might  be  obtained  through  this  western  gateway. 

La  Salle  had  a  great  genius  for  making  friends  with  the  Indians 
with  whom  he  dealt,  but  unfortunately  he  was  not  so  gifted  in  keep- 
ing the  peace  with  his  own  people.  His  cooperation  with  those  re- 
sponsible for  France's  interests  in  America  seems  not  always  to  have 
been  complete  and  in  time  so  intense  a  rivalry  grew  up  between  the 
two  factions  as  to  make  those  in  authority  fear  lest  La  Salle  might 
steal  their  power.  Nor  were  their  fears  groundless,  for  early  in  his 
career  La  Salle  took  steps  to  establish  a  colony  which  he  intended  to 
fortify,  with  the  hope  that  soon  he  might  free  himself  from  the  dif- 
ficulties that  had  befallen  him  at  headquarters  in  Canada  and  eventu- 
ally make  himself  governor  of  a  greater  and  more  fertile  land  than 
the  French  then  claimed.  To  protect  them  from  the  perils  which 
they  perceived  La  Salle  to  be  putting  in  their  path  to  success,  those 
in  authority  sought  to  curb  his  progress  by  securing  a  ruling  from  the 
crown  prohibiting  traders  from  penetrating  the  wilderness  without 
specific  permission.  So  it  was  that,  in  1675,  La  Salle  traveled  to 
France  to  get  permission  and  funds  for  establishing  a  fur  trade  and 
for  building  forts  south  of  the  Lakes.  By  August  of  1679  he  was 
ready  to  set  out  with  the  first  ship  of  commerce  on  the  Great  Lakes, 
and,  trading  as  he  went,  he  succeeded  in  picking  up  a  valuable  load 
of  furs  by  the  time  he  had  reached  Green  Bay,  Wisconsin.  At  that 
point,  because  news  of  the  seizure  of  his  property  by  creditors  had 
come  to  him,  he  sent  back  the  ship  and,  with  only  fourteen  men 
and  four  canoes,  continued  his  journey  south  along  the  eastern  shores 
of  Lake  Michigan  until  he  reached  the  mouth  of  the  river  Saint  Jo- 
seph in  Michigan,  where  he  had  planned  to  meet  his  lieutenant,  Henri 
de  Tonti.     Tonti  had  not  arrived,  so  La  Salle  kept  his  men  from 


LA  SALLE 
First  Promoter  of  big  business  in  the  West.     From  a  Statue  in  Lincoln  Park,  Chicago. 


HISTORY  OF  BANKING  IN  ILLINOIS  39 

mutiny  by  interesting  them  in  the  building  of  a  fort  where  they  were. 
Within  the  month  Tonti  arrived  with  his  men,  making  a  party  now  of 
thirty-three  in  all  and  eight  canoes.  Early  in  December  this  group 
set  out  up  the  river  to  find  a  portage  to  the  Kankakee  where  on  Jan- 
uary 5  they  came  upon  a  village  of  the  Illinois  Peoria  Indians,  hostile 
at  first,  but  later  won  over  by  La  Salle's  talents  for  making  friends 
with  the  red  men.  Here  they  built  Fort  Crevecoeur,  a  short  distance 
from  the  settlement.  This  fort  was  short-lived  and,  like  so  many  of 
La  Salle's  other  undertakings,  was  destroyed  in  the  countless  battles 
with  the  Indians  who,  urged  on  by  economic  competition  between  the 
English  and  French  or  the  personal  animosity  of  the  French  in  au- 
thority toward  La  Salle  himself,  were  constantly  attacking  the  explor- 
ing parties.  But  La  Salle  and  Tonti  pressed  on  with  great  persistency, 
and  in  December  of  1682  succeeded  in  building  the  first  permanent 
fort  in  this  section  of  the  country. 

Fort  Saint  Louis — which,  because  a  band  of  Indians  were  said  to 
have  starved  to  death  there,  as  they  defended  themselves  against  their 
enemies,  was  better  known  then,  as  now,  by  the  name  of  Starved  Rock 
— provided  a  natural  fortification  apparently  adequate  to  withstand 
all  the  Indian  attacks  inspired  by  personal  enemies  or  competing  fur 
traders.  The  rock  itself  rises  from  the  Illinois  River  to  a  height  of  125 
feet ;  its  steep  sides  offer  only  one  access,  and  that  a  difficult  one ;  the 
summit  comprises  about  an  acre  of  land.  On  this  splendid  natural 
fortification  La  Salle  established  himself  and  here  were  signed  the 
first  patents  to  land  ever  made  in  Illinois.  Thus  entrenched,  La  Salle 
set  about  making  friends  with  the  Indians  until  he  had  built  up  the 
additional  fortification  of  a  village  composing  some  twenty  thousand 
people  from  friendly  tribes. 

La  Salle  was  too  much  the  explorer  to  be  content  to  settle  at  Fort 
Saint  Louis  and  build  up  his  fur  monopoly.  Instead,  while  he  con- 
tinued his  expeditions,  Tonti  formed  a  company  with  La  Forest,  an- 
other of  La  Salle's  lieutenants,  having  secured  a  capital  of  twenty 
thousand  livres.  For  many  years  these  represented  the  French  po- 
litical and  trading  interests  in  America — Tonti  at  Starved  Rock  and 
La  Forest  at  Fort  Frontenac  in  Canada.  After  the  death  of  La 
Salle,  La  Forest  obtained  permission  to  join  Tonti,  and  in  1690  the  two 
men  moved  the  location  of  the  fort  to  a  more  accessible  spot  on  the 
north  side  of  the  river.  French  settlers  gathered  at  this  new  trading 
post,  making  the  new  Fort  Saint  Louis — also  called  Fort  Pimitoui — 
the  first  permanent  village  in  Illinois. 


40  FINANCING  AN  EMPIRE 

America  was  by  now  exporting-  large  quantities  of  beaver  pelts 
to  France.  Some  of  them  were  disposed  of  in  the  Netherlands — then 
one  of  the  principal  fur  markets  of  Europe — and  the  remainder  were 
absorbed  by  hat  factories  in  Normandy  run  by  the  Huguenots.  In 
1685,  the  king,  through  his  denial  of  religious  liberty  to  the  latter, 
caused  sd  many  members  of  the  sect  to  leave  France  as  to  impair 
greatly  the  industry  which  had  been  absorbing  most  of  the  beaver 
pelt  output  of  Canada.  Also,  at  this  time  France  was  waging  war 
against  the  Netherlands  and  so  had  cut  off  her  only  other  adequate 
market  for  this  product.  Conditions  reached  such  a  state  that  in 
1700  the  king  abolished  his  system  of  trading  permits  for  the  settlers 
in  America,  and  as  a  result  those  colonists  who  depended  upon  the 
fur  trade  lost  all  they  had.  The  business  which  Tonti  and  La  Forest 
had  built  up  under  so  many  difficulties  was  destroyed  by  this  royal 
decree,  and  thus  ended  the  great  monopoly  which  had  been  planned 
by  La  Salle,  the  first  promoter  of  big  business  in  the  west. 

In  spite  of  the  catastrophe  that  had  befallen  the  fur  traders,  the 
French  communities  in  America  continued,  by  agreement,  to  hold  a 
monopoly  on  trade  in  beaver  skins.  Owing  to  the  efforts  of  La  Salle, 
Illinois  had  now  become  a  part  of  the  French  territory  and  it  was 
expected  that  the  work  begun,  aided  by  the  fur  monopoly,  would  con- 
tinue so  rapidly  that  the  great  explorer's  undertakings  would  soon 
grow  into  a  French  empire  in  America.  Thus  this  part  of  the  coun- 
try was  developing  from  an  experiment  in  imperialism  into  the  object 
of  speculation  for  all  Europe.  For  a  time  the  territory  in  and  about 
Illinois,  together  with  Louisiana,  which  then  extended  as  far  north 
as  the  Ohio  River,  was  to  become  the  center  of  interest  of  the  financial 
world  and  play  so  disastrous  a  part  in  European  finances  as  never  to 
be  forgotten. 

Early  in  the  eighteenth  century,  speculation  was  becoming  rife 
all  over  the  world.  In  particular,  the  mania  centered  in  France  and 
attracted  attention  through  the  efforts  of  the  Scotch  adventurer  and 
gambler,  John  Law.  Law  had  some  of  the  stable  qualities  of  the 
financial  thinker,  but  he  held  the  theory  that  industrial  prosperity 
was  to  be  measured  by  the  amount  of  money  in  circulation  regardless 
of  its  source  or  kind.  To  supply  the  immediate  demand  was  his  first 
consideration;  the  ultimate  results  of  inflation  concerned  him  little, 
if  at  all.  Beyond  all  else,  he  urged  the  adoption  of  a  system  of  paper 
credit  currency  to  supplement  the  coinage  in  circulation.  France  at 
this  time  was  on  the  very  verge  of  bankruptcy  and  was  therefore,  in 


STARVED  ROCK 

First   permanent   trading  post   in   Illinois. 


HISTORY  OF  BANKING  IN  ILLINOIS      .  43 

spite  of  the  opposition  of  influential  men,  in  a  position  to  accept  the 
unsound  policies  of  Law  and  allow  him  to  establish  a  private  bank, 
which,  chartered  in  May,  1716,  rapidly  rose  to  the  position  of  financial 
dictator  of  France.  Soon  the  bank  became  nationalized  and  in  it 
centered  all  the  financial  business  of  the  state.  Having  achieved  so 
much  success,  Law  next  established  the  "Company  of  the  West,"  bet- 
ter known  as  the  "Mississippi  Company,"  with  a  charter  for  twenty- 
five  years  beginning  January  1,  1718.  The  charter,  which  he  was 
able  to  secure,  gave  the  company  a  complete  trade  monopoly  of  Louis- 
iana, ownership  of  all  mines  to  be  opened  by  the  company,  free  dis- 
posal over  all  forts,  ports,  and  the  garrisons  of  the  province,  free 
importation  of  French  goods,  a  reduction  of  the  duty  on  goods  im- 
ported into  France,  and  other  similarly  sweeping  rights.  In  Sep- 
tember of  the  same  year  this  charter  was  amended  to  include  Illinois 
in  the  territory  of  Louisiana.  In  time  great  commercial  companies 
which  had  been  operating  in  India  and  Africa  were  united  with  the 
Mississippi  Company  and  together  they  set  about  avowedly  to  ex- 
ploit the  world.  The  resulting  speculation  went  so  wild  that  shares 
in  these  enterprises  rose  to  twenty  times  their  value  and  for  a  time 
many  large  fortunes  were  made,  even  in  the  space  of  a  day. 

Meantime  complications  arose  in  France.  Law's  bank  was  taken 
over  by  the  government.  The  unsound  currency  began  to  bring  its 
inevitable  consequences.  In  order  to  save  a  situation  already  bad,  the 
French  government,  with  absolute  power  of  legislation,  set  about  to 
give  the  widest  extension  to  what  it  chose  to  call  credit.  Soon  there 
waged  a  contest  between  paper  and  specie,  and  a  law  was  passed  re- 
quiring that  all  specie  be  deposited  with  the  government  and  only  the 
paper  used.  Xo  one  could  convert  paper  into  specie  without  subject- 
ing the  specie  to  forfeiture  and  himself  to  fines.  The  country  was 
shortly  in  bankruptcy,  its  people  impoverished,  its  capital  destroyed, 
and  labor  left  without  employment.  This  downfall  abruptly  cur- 
tailed expenditures  for  Louisiana,  and  that  territory  which  had  been 
"proved"  by  exhibitions  in  Paris  and  elsewhere  to  contain  rich  gold 
and  silver  mines,  as  well  as  almost  every  other  luxury  desired  by  man, 
ceased  to  be  the  greatest  speculation  the  world  had  yet  known.  So 
troubled  had  the  country  been  during  its  financial  ecstasies  abroad 
by  wars  with  the  Indians,  and  so  grossly  had  the  advertisements  mis- 
stated its  wealth  in  gold  and  gems  that  great  difficulty  had  been  met 
in  getting  any  but  criminals,  paupers,  and  others  forced  by  the  gov- 
ernment to  settle  there.    The  company  finally  had  to  petition  the  king 


44  FINANCING  AN  EMPIRE 

to  take  back  both  Louisiana  and  Illinois  into  his  own  hands.  This 
he  did  in  1731,  and  the  great  financial  experiment  of  John  Law  came 
to  an  end — not,  however,  before  the  venture  had  taught  France  how 
to  use  credit.  In  spite  of  his  uneconomic  methods,  Law  had  greatly 
stimulated  trade,  reduced  the  national  debt  of  France,  and  had 
brought  the  country  1,600,000  livres  before  he  found  it  necessary  to 
flee  the  country  with  but  a  little  pocket  money. 

After  returning  to  the  care  of  the  French  government,  the  finan- 
cial affairs  of  Illinois  were  under  the  full  control  of  the  commissaire- 
ordonnateur.  He  administered  the  funds,  provisions,  munitions,  and 
merchandise.  Without  his  order  no  jjayment,  consumption,  or  sale 
could  be  made.  As  is  to  be  expected,  specie  was  lacking,  so  paper 
money  in  the  form  of  bills  of  exchange,  treasury  notes,  orders  on  the 
storehouse,  contracts  between  individuals,  royal  notes,  and  card  money 
were  used.  The  orders  on  the  storehouse  were  issued  to  employees 
or  to  depositors  of  furs  or  other  products;  so  much  forgery  resulted 
from  this  method  that  in  time  it  was  ordered  stopped  and  replaced 
by  card  money  drawn  by  one  official  and  signed,  registered,  and  num- 
bered by  another.  Eventually  this  system  led  to  so  much  specula- 
tion and  dishonesty  among  officials  that  financial  chaos  reigned  and 
brought  the  country  to  the  verge  of  bankruptcy. 

Merchants  still  could  make  their  way  into  the  west  but  slowly.  It 
is  reported  that  as  early  as  1760  some  had  penetrated  as  far  as  Starved 
Rock  and  opened  a  market  there,  but  after  the  close  of  the  French 
and  Indian  AVar — 1766 — there  was  a  general  rush  into  all  sections  of 
Illinois  and  the  surrounding  territory,  so  that  for  a  few  years  the 
situation  was  not  far  different  from  that  which  was  to  be  known  in 
California  and  the  Yukon  a  century  later.  Among  others,  a  large 
Philadelphia  business  firm,  Baynton,  Wharton  and  Morgan,  sent  sev- 
eral convoys  of  provisions  with  which  to  trade  down  the  Ohio  and 
into  Illinois.  Later  this  same  house  used  large  numbers  of  wagons. 
pack  horses,  and  boats  which  plied  between  the  west  and  Pittsburgh. 
Their  merchandise  included  all  kinds  of  dry  goods,  household  needs, 
musical  instruments,  wines,  trinkets,  and,  in  fact,  practically  all  things 
desired  by  the  settlers.  The  firm  established  its  main  store  at  Kas- 
kaskia  and  later  set  up  branches  at  Cahokia  and  Vincennes,  where 
they  sold  their  merchandise  and  in  payment  received  chiefly  furs. 
The  store  was  in  charge  of  George  Morgan,  a  graduate  of  Princeton 
who,  it  is  believed,  was  lacking  both  in  good  nature  and  in  business 
ability.      In  1771  the  venture  was  sold  out  to  William  Murray  who 


HISTORY  OF  BANKING  IN  ILLINOIS  45 

represented  a  competing-  firm.  Murray  was  of  a  temper  better  able 
to  cope  with  the  problems  of  the  west  and  for  a  number  of  years  he 
did  business  under  the  firm  name  of  David  Franks  &  Company.  In 
1773.  Murray,  in  behalf  of  the  company  he  represented,  also  em- 
barked on  a  land  buying  expedition  and  created  the  Wabash  Land 
Company.  Until  this  year  it  was  assumed  that  all  lands  were  the 
property  of  the  crown.  However,  Samuel  Wharton,  a  speculator, 
in  an  effort  to  get  a  "rant  of  land  for  himself,  had  two  prominent 
lawyers,  Lord  Camden  and  Charles  Yorke,  give  him  the  following 
legal  opinion: 

"In  respect  to  such  places  as  have  been  or  shall  be  acquired  by 
Treaty  or  Grant  from  any  of  the  Indian  Princes  or  Governments, 
your  Majesties  Letters  Patents  are  not  necessary,  the  property  of 
the  Soil,  Vesting  in  the  Grantee  by  the  Indian  Grants.  Subject  only 
to  your  Majesties  Right  of  Sovereignty  over  the  Settlements,  as  Eng- 
lish subjects,  mIio  carry  with  them  your  Majesties  Laws  Wherever 
they  form  Colonies,  and  receive  protection,  by  virtue  of  your  Royal 
Charters."  (Letter  dated  November  4,  1772,  in  Public  Record  Of- 
fice, Colonial  Office.) 

David  Franks  &  Company,  under  the  management  of  Murray, 
was  the  first  company  to  act  upon  this  opinion  and  in  1773  Murray 
went  to  the  Illinois  country  to  negotiate  a  large  purchase  of  land  from 
the  Indians.  He  met  with  opposition  from  the  commander  at  Kas- 
kaskia,  who,  in  his  loyalty  to  the  king,  felt  that  he  must  stop  this  move: 
neverthless,  Murray  succeeded  in  carrying  out  his  purpose  and  ob- 
tained two  large  tracts,  one  on  the  Illinois  River  and  the  other  between 
the  Ohio  and  the  Mississippi,  where  he  established  the  Wabash  Land 
Company  which,  in  177.).  purchased  two  more  tracts  on  the  Wabash 
River.  Eventually  those  opposed  to  the  move  were  won  over  and 
taken  into  the  company. 

Thereafter,  land  speculation  became  the  financial  mania  of  the 
day.  By  now  continental  paper  money  issues  in  the  east  were  fluctu- 
ating daily  and  speculators  in  the  west  had  only  to  watch  the  money 
trend  to  take  advantage  of  it.  It  is  even  claimed  that  George  Rogers 
Clark,  one  of  the  big  speculators,  succeeded  in  passing  his  continental 
money  on  banks  along  the  Mississippi  at  par.  Because  of  this  and  other 
rumors,  by  1779  crowds  of  traders  appeared  in  the  Illinois  villages 
to  bid  against  one  another;  prices  rose  so  fast  that  they  had  tripled 
within  two  months;  Virginia  had  called  some  of  her  paper  money 
which  added  to  the  existing  currency  problems.      County  Lieutenant 


46 


FINANCING  AN  EMPIRE 


John  Todd  tried  to  solve  the  difficulty  by  putting-  a  complete  stop  to 
paper  credit.  This  he  accomplished  by  taking  such  paper  as  he  found 
in  the  hands  of  individuals,  sealing1  it,  and  in  its  place  giving  a  certi- 
ficate of  receipt  which  promised  lands  in  exchange.  This  action 
probably  entitles  Todd  to  the  place  of  first  banker  in  Illinois. 


THE  ARRIVAL  OF  THE  PIONEERS 


CHAPTER  II 
EARLY  CURRENCY  AND  BANKING 

Economic  developments  after  War  of  1812 — First  banking  system  in  Illinois — Banks  o 
Shawneetown,  Edwardsville,  Kaskaskia  and  Cairo — Ninian  Edwards. 

Largely  because  of  the  unsettled  state  of  the  country  and  the 
roving  nature  of  much  of  the  population,  there  was  no  serious  demand 
for  banks  until  after  the  close  of  the  War  of  1812.  Even  at  the 
beginning  of  the  nineteenth  century  there  was  practically  no  specie  in 
Illinois.  Instead,  settlers  used  Indian  money  and  the  pelts  of  beaver, 
raccoon,  wolf,  and  deer.  Wolf  scalps  too,  because  of  the  bounty  placed 
upon  them,  served  as  county  orders  and  could  be  exchanged  for  tax 
receipts.  So  prevalent  was  this  unwieldy  currency  that  at  times 
large  shipments  of  skins  were  made  to  the  east  in  payment  for  sup- 
plies purchased  there.  It  is  recorded  that  the  publisher  of  one 
Illinois  newspaper  who  found  himself  unable  to  assemble  enough 
money  of  a  more  conventional  type  to  meet  his  bill  for  paper,  shipped 
his  eastern  creditor  nine  and  one-half  dozen  deer  skins  valued  at  six 
dollars  each.  Even  as  late  as  1830  such  currency  as  did  exist  in 
Illinois  and  the  neighboring  communities  was  subject  to  wide  suspicion 
and  so  little  used  that  the  volume  of  coin  in  all  the  country  west  of 
Detroit  was  too  small  to  be  computed.  .  Almost  all  business  was 
carried  on  by  barter  and,  particularly  in  trading  with  the  Indians, 
blankets,  beads,  traps,  guns,  ammunition,  and  intoxicating  drinks 
served  as  suitable  media  of  exchange.  Early  exchanges  involving 
the  need  of  money  were  often  made  through  Indian  traders.  These 
men  were  honest  and,  so  far  as  is  known,  always  redeemed  their  scrip 
in  accordance  with  their  promises.  Such  currency  as  was  in  use 
consisted  mainly  of  the  silver  coins  of  various  countries. 

With  the  close  of  the  War  of  1812,  however,  there  came  a  marked 
change  in  the  economic  life  of  the  region.  Settlers  then  began  pour- 
ing in  from  the  east — first  those  hunters  who  supported  themselves 
and  their  families  by  the  products  of  the  wilderness.  These,  in  turn, 
were  followed  by  men  who  were  accustomed  to  more  civilized  modes 

47 


48  FINANCING  AN  EMPIRE 

of  living  and  who,  though  also  migratory  in  nature,  did  settle  suffi- 
ciently long  to  attend  to  some  building,  put  the  land  under  cultivation, 
and  raise  domestic  animals  for  the  market.  Largely  as  a  result  of 
their  labors  and  because  of  the  quantities  of  corn,  ginseng,  beeswax, 
salted  pork,  tallow,  hides,  beef,  wool,  and  flax  products  with  which 
they  kept  the  market  supplied,  money  began  to  flow  into  the  west — 
first  for  their  products,  and,  next,  for  the  lands  which  they  had  put 
into  usable  shape.  It  must  be  remembered,  however,  that  this  tran- 
sition was  only  gradual.  Even  as  late  as  1820  advertisements  ap- 
peared in  the  papers  of  the  state  announcing  lists  of  goods  just  re- 
ceived which  were  offered  cheaply  for  cash,  for  produce,  or  on  terms. 

Partly  because  these  settlers  had  broken  the  ground  and  made 
it  possible  to  till  the  fertile  fields  with  more  or  less  ease,  and  partly 
because  of  the  enactment  of  land  laws  encouraging  settlement,  there 
came,  in  the  period  between  1814  and  1819,  a  rush  of  land  buyers,  so 
that  hundreds  of  thousands  of  acres  were  sold  within  a  short  space 
of  time.  Consequently,  there  was  a  clamor  for  currency  which,  as 
will  be  seen,  was  soon  to  be  supplied  through  the  almost  unlimited 
manufacture  of  paper  notes. 

At  first  the  principal  market  outlet  which  Illinois  had  for  her 
products  was  by  way  of  the  Mississippi  to  New  Orleans.  Her  only 
source  of  supplies  was  the  eastern  states.  There  was  no  medium  of 
money  exchange  between  New  Orleans  and  the  east  and  so  the  west 
could  have  no  credit  in  the  east.  Such  small  amounts  of  specie  and 
other  recognized  money  as  she  could  obtain  had  to  be  hoarded  to  pay 
bills  in  the  east.  To  remedy  situations  such  as  this,  the  Bank  of  the 
United  States  attempted  to.  so  establish  itself  that  its  bills,  no  matter 
where  issued,  would  be  redeemed  at  any  of  its  branches.  This  plan 
doubtless  would  have  saved  the  situation  had  it  not  been  for  the  fact 
that  the  western  branches  issued  so  much  currency  for  local  improve- 
ments or  land  speculation  that  the  east  was  threatened  with  having  her 
supply  of  specie  drained.  To  meet  the  situation,  the  bank  discon- 
tinued its  issues  of  notes  in  the  west  for  a  number  of  years. 

Because  New  Orleans  was  the  logical  outlet  for  the  products  of 
the  west,  it  was  Alton  on  the  Mississippi  which  first  gave  greatest 
promise  of  becoming  the  commercial  metropolis  of  the  state.  For 
many  years  this  city  and  St.  Louis  vied  with  one  another  for  com- 
mercial supremacy;  by  1831  Alton  had  managed  to  build  up  an  envi- 
able amount  of  trade,  and  also  had  arranged  to  secure  for  herself  an 
adequate  amount  of  credit  in  the  east.      Cairo  too  was  boomed  as 


NINIAN  EDWARDS 

First  Territorial   Governor. 


lis 


THE  BUILDING   IX  WHICH  THE  TERRITORIAL  LEGISLATURE   OF  ILLINOIS 
FIRST  MET  AT  KASKASKIA,  1816-1818 


HISTORY  OF  BANKING  IN  ILLINOIS     .  51 

another  rival  to  St.  Louis,  but  never  grew  to  any  great  extent.  Shaw- 
neetown,  because  of  a  favorable  position  on  the  Ohio  shortly  below  its 
union  with  the  Wabash,  was  recognized  as  the  gateway  from  the  east 
and  was  designated  as  a  port  of  entry  by  the  United  States  Govern- 
ment. 

Considering  the  economic  situation  and  the  great  rivalry  which 
existed  between  St.  Louis  and  her  competitors  in  Illinois,  it  became 
important  that  some  banking  system  be  established ;  so,  the  territorial 
legislature  in  its  session  of  1816  and  1817  drew  up  and  granted  char- 
ters which  were  intended  to  create  four  banks  at  four  presumably  im- 
portant commercial  centers — Shawneetown,  Edwardsville,  Kaskaskia 
and  Cairo.  As  first  passed  in  1816,  the  act  incorporated  the  "Presi- 
dent, Directors,  and  Company  of  the  Bank  of  Illinois"  at  Shawnee- 
town. Although  the  charter  was  loose  and  of  a  "wild  cat"  nature,  it 
represented  the  first  attempt  at  legal  banking  in  Illinois  and  formed 
the  basis  for  bank  charters  which  were  to  create  much  financial  havoc 
in  the  years  to  come.  The  charter  granted  contained  provisions  allow- 
ing a  capital  stock  of  three  hundred  thousand  dollars  to  be  divided 
into  shares  of  one  hundred  dollars  each.  One-third  of  these  were  to 
be  reserved  for  the  territory  of  Illinois,  but  need  not  be  taken  over 
unless  the  legislature  wished  to  make  the  purchase.  As  soon  as  fifty 
thousand  dollars  had  been  subscribed  and  ten  thousand  paid  in,  the 
bank  might  open  for  business.  No  one  person  was  to  be  permitted 
to  subscribe  for  more  than  ten  shares  each  day  during  the  first  ten  days 
of  subscription,  but  beyond  that  no  limit  was  set  on  the  amount  of 
stock  any  one  individual  might  hold. 

Since  there  was  so  little  specie  to  be  had,  it  was  required  that  only 
ten  dollars  a  share  be  paid  in  gold  or  silver;  the  rest  might  be  paid 
in  the  notes  of  other  banks,  subject  to  the  approval  of  the  directors. 
Payment  could  be  asked  for  not  more  than  twenty-five  per  cent  of 
the  whole  at  any  time  and  that  only  after  sixty  days'  notice.  The 
charter  permitted  the  bank  to  continue  for  twenty  years  and  allowed 
it  to  acquire  property  valued  at  as  much  as  five  hundred  thousand 
dollars.  There  were  to  be  twelve  directors  chosen  by  vote  of  the 
stockholders  from  among  residents  of  Illinois.  Votes  were  not  ac- 
corded strictly  in  proj)ortion  to  amount  of  stock  held ;  instead,  one  or 
two  shares  entitled  a  stockholder  to  one  vote,  two  to  ten  shares  one 
vote  for  every  two,  ten  to  thirty  shares  one  vote  for  each  four,  and  so 
on,  decreasing  with  the  amount  of  stock  held.  While  the  bank  might 
hold  property  to  the  value  of  five  hundred  thousand  dollars,  it  could 


LIBRARY    " 

UNIVERSITY  OF  ILLINOIS 


52  FINANCING  AN  EMPIRE 

hold  no  lands  except  such  as  were  necessary  to  the  accommodation 
of  its  business  and  such  as  were  mortgaged  as  security  for  loans  or  were 
bought  at  judgment  executions  in  the  bank's  favor.  The  debts  were 
never  to  exceed  twice  the  capital  actually  paid  in,  no  matter  how  much 
money  might  be  on  deposit,  and  any  directors  violating  this  provision 
were  to  be  held  personally  liable;  if,  however,  a  director  could  prove 
that  he  was  absent  or  voted  against  the  violation,  he  was  to  be  excused 
from  liability.  The  bank  was  to  be  limited  to  dealing  in  gold  and 
silver,  bills  of  exchange,  goods  produced  on  its  own  lands,  and  goods 
pledged  but  not  redeemed.  The  rate  of  discount  was  never  to  exceed 
six  per  cent  and  if  at  any  time  it  suspended  specie  payment,  holders 
of  obligations  on  which  specie  was  refused  could  collect  twelve  per 
cent  until  they  obtained  their  money. 

The  requirement  that  the  Illinois  chartered  banks  be  so  strictly 
penalized  whenever  they  were  unable  to  pay  all  notes  presented  in 
specie,  put  them  in  a  position  to  suffer  from  the  attacks  of  rivals. 
Hostile  banks  in  other  sections  or  states  would  try  to  discredit  the 
paper  of  Illinois  banks  by  first  refusing  acceptance  and  later  by  as- 
sembling it  in  such  quantities  as  to  embarrass  the  issuing  bank  greatly 
through  presenting  large  amounts  to  be  redeemed  at  one  time.  Sup- 
plies of  specie  never  were  so  great  as  to  be  adequate  to  meet  every 
conceivable  emergency.  To  meet  other  similarly  difficult  situations, 
the  legislature  at  the  same  session  which  granted  the  charter  provided 
that  all  executions  might  be  held  off  for  one  year,  if  the  party  bringing 
judgment  would  agree  in  writing  to  accept  in  payment  the  notes  of 
the  Bank  of  Illinois  and  of  a  number  of  other  western  banks,  such  as 
Cincinnati,  Chillicothe,  Ohio,  any  bank  in  Tennessee  or  Kentucky, 
and  the  banks  of  Vincennes  and  Missouri.  (Laws  of  Illinois,  1816-17, 
p.  20,  section  1.)  This  course  was  necessary,  as  since  the  Federal 
government  would  not  permit  the  bank  notes  to  be  made  legal  tender, 
it  would  be  impossible  to  pay  in  specie  without  great  sacrifice  of  prop- 
erty, and  something  had  to  be  done  for  the  great  debtor  class  which 
constituted  a  large  part  of  the  population. 

The  bank  of  Shawneetown  opened  for  business  very  shortly  after 
the  granting  of  its  charter  and  was  so  well  managed  that  it  showed 
more  vitality  than  the  others  which  were  organized  about  the  same 
time.  It  successfully  handled  government  funds,  built  up  an  exten- 
sive credit,  and  kept  this  unimpaired  until  the  general  financial  shake- 
up  in  1821.  Even  in  those  difficult  times,  it  was  the  last  to  suspend 
specie  payments  and  a  few  days  before  suspension  even  paid  an  eight 


(Courtesy  of   Chicago  Historical  Society) 


FIRST  SAFE  USED  IN  THE  FIRST  BANK  OF  ILLINOIS,  SHAWNEETOWN,  1816 


HISTORY  OF  BANKING  IN  ILLINOIS  55 

per  cent  dividend  on  its  stock.  However,  as  conditions  after  this 
showed  no  prospect  of  improvement,  it  seemed  best  to  suspend  in 
1823. 

Out  of  these  difficulties  the  bank  managed  to  save  its  charter  and, 
after  remaining  dormant  for  a  number  of  years,  had  this  extended  in 
1835  when  it  re-embarked  on  its  career. 

The  banks  at  Edwards ville,  Kaskaskia,  and  Cairo  were  chartered 
in  1818  under  provisions  similar  to  the  one  at  Shawneetown.  Ed- 
wardsville,  only  a  few  miles  from  St.  Louis,  was  a  rival  of  Shawnee- 
town, and  its  bank  was  capitalized  for  the  same  amount — three  hun- 
dred thousand  dollars.  In  spite  of  this  rivalry,  during  the  period  of 
struggle  for  an  existence  the  directors  of  the  two  banks  realized  that 
it  was  best  to  cooperate  as  far  as  possible.  Consequently,  arrange- 
ments were  made  for  each  to  receive  the  notes  of  the  other  as  a 
protection  from  their  common  enemy,  the  Bank  of  Missouri,  which 
was  doing  all  it  could  to  discredit  its  new  rivals  in  Illinois.  Also,  in 
order  to  maintain  themselves,  the  two  banks  of  Illinois  agreed  to 
inform  each  other  of  the  amounts  of  notes  each  held  belonging  to  the 
other  and  to  make  a  practice,  not  of  presenting  them  for  collection, 
but  rather  of  sending  them  to  places  so  far  removed  that  the  chances 
of  their  ever  being  presented  would  be  greatly  reduced.  Each  bank 
agreed  never  to  redeem  the  notes  of  the  other  except  in  cases  of  ex- 
treme necessity. 

The  fact  that  these  two  rival  banks  were  willing  to  cooperate  as 
they  did  indicates  the  extreme  difficulties  of  the  times  in  which  they 
were  launched.  Only  a  few  months  after  the  bank  of  Edwardsville 
opened  for  business,  the  directors  called  for  a  second  payment  on  its 
shares  of  stock;  so  stringent  was  the  financial  situation  by  then  that 
more  than  five  thousand  shares  had  to  be  declared  forfeited  for  non- 
payment. Also,  those  who  were  able  to  make  the  second  payment 
were  suspected  of  having  done  so  only  through  the  unsound  means 
of  borrowing  the  required  amount  from  the  bank. 

Ninian  Edwards,  then  a  senator  from  Illinois,  was  one  of  the 
sponsors  of  the  bank  and,  although  he  was  held  in  high  esteem  at  the 
time,  there  were  others  on  the  board  of  directors  whose  financial 
stability  was  questioned.  Through  the  efforts  of  Edwards,  both  his 
bank  and  the  Bank  of  Illinois  at  Shawneetown  were  made  depositaries 
for  government  funds,  the  permanent  deposit  in  the  former  being  fifty 
thousand  dollars  and  at  Edwardsville,  forty  thousand.  While  the 
Bank  of  Illinois  took  good  care  of  these  funds,  the  ownership  of  the 


56  FINANCING  AN  EMPIRE 

bank  at  Edwardsville  seems  to  have  involved  it  in  a  series  of  associa- 
tions with  other  banking  enterprises  of  a  sufficiently  uncertain  charac- 
ter to  bring  about  an  early  closing.  The  bank  constantly  got  into 
difficulties  with  the  United  States  Treasury  over  failures  to  make  re- 
mittances, but  usually  succeeded  in  excusing  itself  by  saying  that 
eastern  funds — in  which  these  remittances  were  required — could  not 
be  secured  in  the  state  and  that  the  shipment  of  specie  was  impossible. 
As  general  business  conditions  grew  steadily  worse  and  conditions 
within  the  bank  more  questionable,  Edwards  found  it  best  not  to 
shoulder  the  responsibility  any  longer  and,  in  1819,  he  cautiously 
withdrew  his  connection  with  the  bank's  management. 

Thereupon  followed  a  controversy  which  did  much  to  darken 
the  good  name  of  Edwards  in  spite  of  all  his  caution.  At  the  time 
of  his  withdrawal,  President  Stephenson  of  the  bank  was  also  receiver 
of  public  moneys  at  Edwardsville.  Mr.  Edwards  claims  to  have 
asked  President  Stephenson  to  notify  Secretary  Crawford  of  the 
Treasury  of  his  action  and  at  the  same  time  to  have  requested  him 
to  withhold  from  the  bank  all  government  funds  in  his  possession  until 
such  time  as  Secretary  Crawford  had  been  able  to  take  some  action. 
Not  long  thereafter,  Edwards  announced  his  withdrawal  from  the 
bank  through  the  newspapers,  assuring  the  public  at  the  same  time 
that  the  bank  was  in  good  condition  and  under  capable  management. 
Among  other  things  he  stated  that  the  bank  had  specie  on  hand 
amounting  to  more  than  twice  the  outstanding  circulation,  that  none 
of  the  directors  had  borrowed  heavily,  and  that  the  largest  stock- 
holder had  always  urged  that  the  bank's  affairs  be  conducted  with 
the  greatest  caution.  (U.  S.,  H.  of  R.,  18  Cong.,  1  Sess.  Doc.  No. 
133,  pp.  85,  10.5.     No.  128,  p.  8.) 

In  September  of  1821  the  Bank  of  Missouri  failed  and  precipi- 
tated a  run  on  the  bank  at  Edwardsville.  Although  the  directors  did 
everything  in  their  power  to  restore  confidence,  they  were  soon  com- 
pelled to  suspend  specie  payments  and  after  the  final  settlement  it 
was  found  that  the  assets  had  so  dwindled  that  even  the  United  States 
never  recovered  any  of  the  money  it  had  on  deposit.  A  judgment 
for  fifty-four  thousand  dollars  was  obtained  by  the  government,  but  it 
proved  valueless.  Two  years  later  a  committee  of  the  House  of 
Representatives  at  Washington  in  investigating  the  question  of  public 
deposits  summoned  Edwards  to  appear  and  he  then  explained  that, 
whereas  the  assets  set  aside  as  security  for  the  government  deposit 
had  been  more  than  ample  at  the  time  of  his  resignation  from  the 


THE  HOME  OF  JOHN  MARSHALL,  ILLINOIS'  FIRST  BANKER 
This  building  housed  the  Bank  of  Shawneetown  in  1816. 


IN  THE  BRICK  BUILDING  WAS  LOCATED  THE  OLD  CAIRO  BANK;  THE  WOODEN 
BUILDING  WAS  THE  OLD  LAND  OFFICE 


HISTORY  OP  BANKING  IN  ILLINOIS  59 

affairs  of  the  hank,  Secretary  Crawford  out  of  consideration  for  some 
of  the  remaining  directors  had  delayed  settlement  until  the  securities 
had  become  worthless. 

The  following  year  Secretary  Crawford  replied  to  Edwards'  ac- 
cusations of  his  neglect  of  duty  and  a  thorough  investigation  was 
made  of  the  whole  affair.  The  conclusion  reached  was  that  "noth- 
ing has  been  proved  to  impeach  the  integrity  of  the  Secretary  or  to 
bring  into  doubt  the  general  correctness  and  ability  of  his  administra- 
tion of  the  finances."  ( U.  S.  H.  of  R.  18  Cong.,  1  Sess.,  Doc.  Nos.  128, 
133.)  Xo  evidence  was  found  that  either  Edwards  or  the  receiver 
of  public  moneys — Stephenson — had  ever  told  Secretary  Crawford 
of  the  bank's  condition.  Since  the  receiver  was  also  president  of  the 
bank,  the  supposition  was  natural  that  the  information  would  not  have 
been  given.  Therefore,  the  committee  recommended  that  in  the 
future  presidents  of  depositary  banks  be  disqualified  for  the  position 
of  receiver  of  public  money. 

The  Bank  of  Kaskaskia  was  given  a  charter  very  similar  to  those 
of  the  other  two  banks,  except  it  provided  for  a  capital  stock  of  five 
hundred  thousand  dollars,  and  the  start  was  made  with  officers  of 
ability  and  integrity,  the  location  was  favorable,  as  Kaskaskia  had 
developed  into  one  of  the  rival  trading  centers  of  the  district,  but 
times  were  against  such  an  enterprise.  The  charter  demanded  that 
subscriptions,  in  part  at  least,  be  paid  in  gold  and  silver  coin.  Times 
were  too  hard  to  make  the  coin  available  and  the  bank  never  transacted 
business. 

The  Bank  of  Cairo  attempted  to  launch  itself  in  a  truly  ingenious 
way.  The  incorporators  had  visions  of  establishing  a  great  metropolis 
and  so  bought  up  eighteen  hundred  acres  of  land  including  the  present 
site  of  the  city  of  that  name.  The  site  was  to  be  laid  off  into  city 
lots  to  be  sold  at  a  price  of  one  hundred  and  fifty  dollars  each;  fifty 
dollars  of  this  amount  was  to  be.  used  for  city  improvements,  such  as 
the  building  of  dikes  and  levees  and  the  construction  of  public  build- 
ings; the  remaining  one  hundred  dollars  to  apply  on  the  capital  of 
the  bank.  (Laws  of  Illinois,  1817-18,  pp.  7.3,  section  7.)  When 
five  hundred  lots  had  been  sold,  a  stockholders'  meeting  would  be 
held  from  which  thirteen  citizens  were  to  be  chosen  as  directors.  ( Ibid, 
p.  76-7,  section  7.)  As  the  town  had  not  yet  been  built,  it  was  not 
feasible  for  a  time  to  conduct  a  banking  business  on  its  site.  There- 
fore, a  provisien  was  made  whereby  the  banking  business  could  be 
transacted  at  I^askaskia,  thus  enabling  the  officers  to  issue  notes  as 


60  FINANCING  AN  EMPIRE 

soon  as  the  money  from  the  sale  of  lots  had  been  turned  over  to  them. 
Needless  to  say,  this  ambitious  program  did  not  work  out,  the  bank 
never  accepted  the  charter,  and  the  organization  was  never  perfected 
until  nineteen  years  later  (1837),  when  the  great  internal  improve- 
ment mania  found  a  way  of  using  the  old  charter  for  its  purposes. 
With  the  failure  of  the  bank  to  undertake  operations  the  scheme  for 
a  great  city  also  vanished,  and  when  finally  Cairo  was  settled  it  came 
about  in  the  same  difficult  and  timeworn  way  known  to  most  new 
settlements. 

At  the  time  these  banks  were  chartered,  the  population  of  the 
whole  state  of  Illinois  amounted  to  only  thirty  thousand  people  and 
there  really  existed  little  need  for  banking  functions  proper.  There 
was  no  commerce  worthy  of  the  name,  no  enterprises  of  importance, 
no  developed  business  and,  though  failures,  the  banks  had  probably 
been  as  useful  to  the  state  as  necessary  in  such  times. 

At  the  time  of  the  adoption  of  the  State  Constitution  on  August 
26,  1818,  there  existed  in  good  credit  only  the  Bank  of  Illinois  at 
Shawneetown.  Edwardsville  was  then  in  the  process  of  dissolution, 
Cairo  had  succumbed,  and  the  bank  at  Kaskaskia  had  not  even  suc- 
ceeded in  getting  under  way.  Banks  had  not  done  so  remarkably  well 
as  to  have  gained  sufficient  confidence  to  make  for  themselves  a  place 
in  the  new  state.  Consequently  the  constitution,  as  first  adopted, 
provided  that  there  should  be  no  other  banks  or  moneyed  institutions 
in  Illinois,  except  those  already  provided  by  law  and  a  state  bank 
with  branches. 

At  this  time  statements  of  the  condition  of  the  existing  banks 
were  not  available,  nor  was  it  possible  adequately  to  inquire  into  the 
affairs  of  these  institutions.  In  the  present  undeveloped  state  of 
economic  thought  banks  were  felt  to  be  of  real  use  only  as  paper 
money  mills  and  their  value  to  the  community,  in  the  opinion  of  many, 
was  exactly  in  proportion  to  their  efficiency  in  turning  out  such  a  me- 
dium of  exchange.  When,  a  year  later,  the  secretary  of  the  treasury 
did  succeed  in  obtaining  some  bank  figures,  he  could  get  only  enough 
to  make  a  composite  balance  sheet  of  both  Illinois  banks.  This 
showed  that  $140,910  had  been  paid  in  by  the  shareholders,  the  out- 
standing circulation  was  listed  at  $52,021,  government  deposits 
amounted  to  $119,030.92,  and  those  of  individuals  to  $32,568.00.  Un- 
divided profits  for  the  two  banks  were  listed  at  $2,994.49  and  loans 
and  discounts  amounted  to  $206,694.32,  or  almost  as  much  as  the 
capital  stock,  circulation,  and  private  deposits  combined. 


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HISTORY  OF  BANKING  IN  ILLINOIS 


63 


Deposit  banking  was  not  an  important  part  of  the  business  in 
those  days.  The  government  had  been  selling  large  tracts  of  public 
lands  and  depositing  the  specie  received  with  the  banks,  which  accounts 
for  the  fact  that  the  comparatively  large  amount  of  $74,715.51  was  on 
hand  at  the  time  and  rather  prevents  one  from  seeing  the  real  character 
of  banking  of  the  day.  An  amount  of  $59,332.18  listed  as  due  from 
other  banks  was  doubtless  largely  made  up  of  the  notes  of  these  banks 
deposited  by  the  receivers  of  public  moneys.  Other  assets  consisted 
of  $6,614  invested  in  securities  and  $175  in  real  estate. 

As  the  new  state  legislature  was  of  the  opinion  that  Illinois  and 
other  states  had  had  enough  of  unpleasant  experiences  with  private 
banking,  it  had,  legally,  abolished  all  but  existing  private  banks ;  since 
private  individuals  were  not  to  be  trusted  with  the  issue  of  paper,  the 
state  apparently  was.  To  be  sure,  experience  had  not  been  such  as 
to  lead  to  the  logical  belief  that  the  state  would  be  much  better,  but 
history  undoubtedly  shows  that  so  far  as  fundamental  economic  prin- 
ciples are  concerned,  experience  is  but  a  slovenly  teacher. 


(From  Parri9h:  Historic  Illinois 


THE  SITE  OF  OLD  KASKASKIA 


CHAPTER    III 
FIRST    AND    SECOND    STATE    BANKS 

First  State  Bank  and  depression  of  1819 — Currency  media  in  Illinois — Second  state 
bank,  its  organization  and  provisions — Illegal  loans — Depreciation  of  paper  money 
issues — Closing  of  the  banks  in  1831 — Causes  for  failure  of  state  banks — Scarcity  of 
specie — The  Wiggins  loan — State  taxation. 

The  first  general  assembly  under  the  state  constitution  attempted 
to  establish  an  Illinois  state  bank  with  a  capital  of  four  million  dollars, 
half  to  be  subscribed  by  the  state  and  half  by  private  persons.  Only 
one-fifth  was  to  be  paid  in  during  the  first  six  months  and  the  bank 
could  begin  business  when  fifteen  thousand  dollars  in  specie  had  been 
received.  (Laws  of  Illinois,  1819,  p.  1:5 Iff.  sec.  5.)  Notes  were  to 
be  receivable  for  state  dues  at  par  so  long  as  they  were  payable  on 
demand,  and  were  to  draw  twelve  per  cent  interest  when  not  so  pay- 
able. The  parent  bank  was  to  have  been  established  at  the  seat  of 
government  and  when  it  was  removed  the  bank  was  to  follow.  The 
state  government  was  to  be  allowed  to  take  up  its  two  million  dollars' 
worth  of  shares  whenever  it  felt  justified  in  making  the  necessary 
appropriation.  The  liabilities  of  the  bank,  other  than  capital,  were 
never  to  exceed  two  million  dollars;  ten  per  cent  of  the  stock  was  to 
be  paid  for  in  specie  or  equivalent.  There  would  be  twelve  directors, 
six  of  whom  were  to  be  chosen  by  joint  ballot  of  the  senate  and  house 
of  representatives,  and  no  judge  or  member  of  the  legislature  could 
serve  on  this  board.      (Laws  of  Illinois,  1819,  j3.  1.51,  sec.  3.) 

The  year  1819,  however,  was  not  a  propitious  one  in  which  to  secure 
even  the  small  amount  of  specie  required,  so  the  legislature,  recogniz- 
ing the  hopelessness  of  the  situation,  supplemented  the  bank's  charter 
during  the  same  session  which  granted  it.  This  time  the  state  auditor's 
warrants  might  be  considered  as  good  as  specie.  (Laws  of  Illinois, 
1819,  p.  209.)  Even  this  change,  however,  failed  to  bring  about  the 
desired  result,  so  bad  were  the  times  for  floating  a  new  enterprise. 
Already  there  was  a  general  collapse  of  banks  and  business  enterprises 
and  the  condition  of  the  people  so  hopeless  that  a  cry  for  government 

64 


HISTORY  OF  BANKING  IN  ILLINOIS  65 

aid  arose.  The  press  staged  a  hot  debate  in  which  the  bank  was 
accused  by  some  of  being  the  work  of  a  Kaskaskia  clique,  and  by 
others  the  propaganda  of  the  Shawneetown  press  in  behalf  of  the 
Bank  of  Illinois  located  there.  Consequently,  not  a  dollar  of  the 
capital  was  subscribed,  the  bank  never  went  into  actual  operation, 
and  the  charter  was  repealed  by  the  legislature  two  years  later. 

During  the  first  years  of  her  statehood,  the  currency  of  Illinois 
represented  many  kinds  of  notes-,  which  passed  at  as  many  different 
discounts.  These  latter  varied  constantly  with  the  reputation  of  the 
banks  which  issued  them ;  some  came  from  specie-paying  banks,  many 
of  the  issuing  banks  really  were  solvent,  but  some  were  issued  by 
banks  that  had  failed,  others  by  institutions  that  were  purely  fictitious, 
while  some  were  counterfeits  of  the  issues  of  existing  banks.  *  Some  of 
the  notes  of  Xew  England  banks  and  some  from  western  New  York, 
Pennsylvania,  and  the  District  of  Columbia  found  their  way  into  the 
state,  but  more  came  from  the  banks  of  Ohio  and  the  south.  Notes 
of  Illinois  banks  constituted  only  a  small  part  of  the  whole  and  notes 
of  the  Bank  of  the  United  States  were  very  rare. 

To  the  people  of  Illinois  it  was  extremely  important  that  the  gov- 
ernment land  offices  should  accept  this  uncertain  currency.  Secretary 
of  the  Treasury,  William  H.  Crawford,  tried  to  work  out  a  way  by 
which  the  better  notes  could  be  accepted  and  exchanged  for  eastern 
funds.  With  this  in  mind,  he  had  in  1819  granted  to  the  state  banks 
of  the  west  fixed  government  deposit  balances  and  at  the  same  time  he 
made  them  responsible  for  the  transmission  without  depreciation  of 
bank  notes  deposited  by  land  offices.  In  1820  he  provided  arrange- 
ments permitting  the  depositary  banks  to  receive  and  remit  at  par 
the  notes  of  certain  eastern  banks  and  Avestern  specie  paying  banks, 
all  of  which  was  a  great  help,  eventually,  in  building  up  a  sound 
currency. 

In  the  meantime,  however,  financial  distress  had  become  wide- 
spread. An  act  had  been  passed  in  1820  abolishing  credit  sales  and 
lowering  the  price  of  public  lands  to  a  dollar  and  a  quarter  an  acre, 
which  so  reduced  the  value  of  lands  in  private  hands  as  to  create 
great  financial  embarrassment  and  hard  times.  The  situation 
prompted  a  second  attempt  to  establish  a  state  bank — this  time  as  an 
institution  for  relief  of  individual  distress. 

Although  Governor  Bond  pointed  out  the  folly  of  such  a  course 
and  made  vigorous  protest,  the  new  bank  was  established,  and  wholly 
on  the  credit  of  the  state.     Much  other  opposition  developed  also,  for, 


66  FINANCING  AN  EMPIRE 

dire  as  was  the  distress,  there  seemed  to  be  a  feeling  among  a  large 
number  of  people  that  no  good  would  come  from  issuing  paper  not 
promptly  redeemable  in  specie.  On  the  other  hand,  there  was  an 
equally  strong  demand  for  the  bank  on  the  ground  that  in  time  of 
financial  distress  the  state  should  consider  it  a  duty  to  employ  any 
measures  that  might  bring  relief.  After  a  stormy  session  which  con- 
sumed a  fourth  of  the  time  allotted  to  all  legislation,  the  bill  for  the 
bank  passed  both  houses  by  a  close  vote.  Thus,  on  March  22,  1819, 
the  bank  was  incorporated  as  the  "President,  Directors,  and  Company 
of  the  State  Bank  of  Illinois."  The  capital  was  limited  to  five  hun- 
dred thousand  dollars,  all  owned  by  the  state,  which  through  the 
legislature  had  entire  management  and  control.  The  president  and 
directors  were  elected  by  the  senate  and  house  on  a  joint  ballot  and 
the  cashiers,  both  of  the  main  bank  and  its  branches,  were  appointed 
by  a  majority  of  directors.  The  property,  lands,  and  faith  of  the 
state  were  pledged  without  restriction  for  the  redemption  of  bills 
issued,  and  the  state  was  pledged  to  redeem  all  in  gold  or  silver  within 
ten  years  (one-tenth  each  year),  at  the  end  of  which  time  the  charter 
was  to  expire.  Bills  were  made  legal  tender  for  all  debts  due  the 
state  and  for  the  school  fund.  All  specie  and  land  office  money  were 
required  to  be  deposited  at  the  principal  bank.  Two  thousand  dollars 
was  appropriated  with  which  to  procure  plates  for  the  three  hundred 
thousand  dollars  in  bills  to  be  issued  and  distributed  among  the  several 
districts  in  proportion  to  their  population  and  to  be  loaned  on  notes 
secured  by  mortgage  at  a  six  per  cent  rate.  The  bills  themselves 
would  carry  a  two  per  cent  interest  rate,  so  that  the  borrower  actually 
paid  but  four  per  cent  on  his  money.  No  individual  was  to  borrow 
more  than  one  thousand  dollars,  except  the  president  of  the  principal 
bank  who,  in  consideration  of  his  services,  might  borrow  up  to  two 
thousand  dollars.  It  was  further  provided  that  demand  notes  might 
be  issued  against  money  deposited  in  the  bank  by  the  United  States 
Government  to  the  amount  of  twice  the  sum  deposited.  These  notes 
were  to  be  loaned  in  amounts  not  exceeding  three  hundred  dollars  to 
any  one  individual  at  a  rate  of  six  per  cent. 

Not  without  a  great  struggle,  however,  did  the  bank  enter  upon 
its  existence.  The  constitution  of  1818  required  that  all  bills  have 
the  approval  of  a  council  of  revision  composed  of  the  governor  and 
judges  of  the  supreme  court.  These  men  promptly  gave  their  veto 
to  the  banking  bill  and  when,  finally,  it  was  passed  over  the  veto,  a 
group  of  them  framed  a  formal  protest  which  they  ordered  spread 


(Courtesy  Chicago  Historical  Society) 

STATE   CAPITOL  AT  YAXDALIA,  1820-1S39 


(Courtesy  Chicago  Historical  Society) 


HISTORY  OF  BANKING  IN  ILLINOIS  69 

upon  the  records.  In  this  document  is  made  the  declaration  that  all 
banks,  even  when  established  on  a  specie  basis,  are  detrimental  to 
the  morals  of  the  people  and  a  menace  to  popular  liberty.  The  crisis 
which  then  existed  in  the  United  States,  they  laid  at  the  door  of  the 
banks  and  predicted  that  the  State  Bank  of  Illinois  would  become 
the  tool  of  the  politician.      (House  Journal,  1820-21,  pp.  227-29.) 

In  its  final  form  the  bill  provided  for  the  establishment  of  the  bank 
at  Vandalia,  then  the  state  capital  of  Illinois.  Branch  banks  were 
to  be  provided  at  the  towns  of  Edwardsville,  Shawneetown,  Palmyra, 
and  Brownsville.  At  that  time  Palmyra  was  the  county  seat  of  Ed- 
wards County,  the  boundaries  of  which  extended  to  Canada.  It  was 
then  a  thriving  market  town,  but  was  later  abandoned  on  account  of 
its  unhealthy  location.  Brownsville  was  the  county  seat  of  Jackson 
County;  with  a  population  of  more  than  five  hundred,  it  ranked  next 
to  Shawneetown  and  Kaskaskia;  later  misfortunes  caused  this  town 
also  to  be  abandoned. 

The  president  and  six  directors  of  the  main  bank  and  five  directors 
for  each  of  the  branches  were  to  be  chosen  biennially  by  the  two  houses 
of  the  legislature  in  joint  ballot.  This  representation  was  permitted 
even  though  the  state,  presumably  sole  owner  of  the  enterprise,  had 
so  far  appropriated  only  the  two  thousand  dollars  for  the  purchase 
of  bank  note  plates  and  had  contributed  no  other  funds  to  the  venture. 

The  banks  were  charged  to  treat  all  persons  alike,  each  branch 
caring  only  for  the  needs  of  people  in  its  own  territory.  Also  each 
branch  was  required  to  report  twice  a  year  to  the  principal  bank  which, 
in  turn,  incorporated  these  reports  in  a  biennial  report  of  the  whole 
system  to  the  legislature.  In  spite  of  these  precautions  and  warnings, 
loans  were  made  at  times  on  real  estate  of  value  insufficient  to  cover; 
the  branch  at  Edwardsville  was  accused  of  having  loaned  some  for 
political  reasons  and  some  for  the  establishment  of  a  pro-slavery  press, 
and  the  press  of  the  time  voiced  the  opinion  that  the  only  way  to  get 
a  loan  at  the  bank  was  to  become  indebted  to  one  of  the  directors. 

As  times  became  hard,  however,  and  money  scarce,  the  bank  issued 
a  large  number  of  notes  which  it  loaned  troubled  citizens,  and  gave 
little  thought  to  security  in  return.  This  generous  policy  of  relieving 
the  distress  soon  flooded  the  state  with  currency  and  drove  gold  and 
silver  as  a  circulating  medium  into  retirement;  none  entered  either 
the  vaults  of  the  bank  or  of  its  branches.  Scarcely  had  the  paper 
money  gone  into  circulation  when  it  depreciated  to  seventy  cents  on 
the  dollar,  then  to  fifty,  and  continued  downward  to  twenty-five,  at 

Vol.     1—3 


70  FINANCING  AN  EMPIRE 

which  point  it  disappeared  from  circulation  and  fell  into  the  hands  of 
speculators  who  expected  ultimate  redemption  by  the  state,  which 
had  secured  the  bills  by  pledge  of  all  its  property,  lands,  and  faith. 
Under  the  charter,  all  taxes,  revenue,  and  salaries  of  officers  of  the 
state  were  payable  in  these  bills  at  par.  The  situation  was  brought 
to  the  attention  of  the  legislature  in  1823  by  an  auditor  who  pointed 
out  that  notes  were  circulating  at  a  fifty  per  cent  discount  and  that 
state  officers  had  to  receive  their  pay  in  them  at  par.  Furthermore, 
non-residents  who  paid  their  taxes  in  these  notes  at  par  were  getting 
undue  advantages.  He  urged  that  since  the  measure  had  been  for 
relief  only  it  was  now  high  time  to  press  liquidation  of  the  bank  in 
accordance  with  the  law.  As  a  result  of  his  efforts,  the  legislature 
voted  to  increase  the  salaries  of  the  state  officers  by  fifty  per  cent, 
but  since  taxes  were  permitted  to  remain  payable  in  the  notes  at  par, 
the  state  soon  became  hopelessly  entangled  in  its  financial  system. 

At  this  time  there  was  instituted  an  investigation  which  found  that 
no  reports  were  obtainable  from  which  the  conditions  of  the  bank  and 
its  branches  might  be  learned.  In  1825  the  investigators  decided 
that  the  condition  of  the  bank  was  hopeless.  Except  at  Edwardsville 
and  Palmyra,  expenses  had  exceeded  profits  from  discounting;  at  the 
principal  bank  current  expenses  exceeded  discounts  by  $2,403.96. 
The  books  at  Shawneetown  were  likewise  in  hopeless  disorder  and 
those  at  Brownsville  were  little  better.  At  the  former  place  there 
seemed  to  be  a  defalcation  of  $4,800.76  by  the  cashier  and  $3,750  had 
been  loaned  without  security.  Once  more  the  assembly  reinforced 
the  original  provision  for  gradually  retiring  the  notes  of  the  bank  so 
that  the  institution  would  automatically  liquidate  as  these  were  paid 
off.  All  cashiers  were  required  to  retire  ten  per  cent  of  the  notes 
annually  and  either  burn  or  stamp  them  so  they  would  draw  no  further 
interest.  This  legislation  put  an  end  to  the  branches  except  as 
collecting  agencies  but,  although  the  liquidation  process  was  actually 
begun  as  early  as  1824,  the  notes  continued  to  circulate,  particularly 
as  state  receipts  and  disbursements,  until  the  expiration  of  the  charter 
in  1831.  Then  the  state  closed  its  banking  business  at  a  loss  which 
exceeded  the  full  amount  of  the  original  issue  of  three  hundred  thou- 
sand dollars. 

Nor  was  the  bank's  closing  entirely  due  to  lack  of  wisdom  in  the 
provisions  for  its  underlying  structure.  Instances  of  poor  manage- 
ment and  direct  violations  of  the  law  were  discovered.  On  the  very 
day  that  the  bill  was  passed  over  the  veto  of  the  council,  one  of  the 


ISAiXKol  IL.L I  *«!« 


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(Courtesy  D.  C.  Wismer) 


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(Courtesy  D.  C.  Wismer) 

NOTES  OF  SOME  OF  ILLINOIS'   FIRST  BANKS 


HISTORY  OF  BANKING  IN  ILLINOIS  .  78 

eight  men  who  voted  for  the  measure 'was  made  cashier  of  a  branch 
in  direct  violation  of  the  constitution.  According  to  writers  of  the 
time,  all  the  officers  chosen  were  professional  politicians  who  either 
were  or  expected  to  become  candidates  for  office  and  who,  therefore, 
were  unwilling  to  risk  the  loss  of  popularity  by  a  too  careful  adherence 
to  the  provisions  for  security  on  loans. made.  Furthermore,  the  notes 
could  not  maintain  their  value  on  the  eastern  money  markets  as  no 
provision  was  made  to  redeem  them  in  specie  on  demand.  Nor  could 
this  have  been  done,  since  the  notes  were  themselves  driving  all  specie 
into  hiding;  so  scarce  did  it  become  in  fact  that  stories  are  told  of  as 
little  as  two  dollars  in  specie  being  put  on  exhibition  in  the  bank  as  a 
great  curiosity.  In  1823  the  main  bank  lost  its  building  and  fixtures 
in  a  fire  and  for  a  time  thereafter  kept  its  specie  in  a  box  fastened 
with  a  padlock.  A  few  weeks  later  robbers  broke  into  the  quarters 
occupied  by  the  bank  and  carried  off  forty-two  hundred  dollars  which 
the  Illinois  Intelligencer  of  March  29,  1823,  records  as  having  been 
"a  large  part  of  its  specie." 

Furthermore,  with  paper  money  circulating  so  freely,  and  of  such 
small  purchase  value,  the  attitude  of  borrowers  could  not  be  one  of 
greatest  respect  for  the  obligations  they  had  incurred.  Indeed,  they 
looked  upon  this  paper  as  the  gift  of  the  state,  which  was  to  be  paid 
back  only  at  the  wish  and  convenience  of  the  debtors.  Others  decided, 
for  their  own  convenience,  that  the  issue  was  unconstitutional.  Tilings 
grew  so  bad  in  this  respect  that  in  1820  the  matter  was  taken  into 
the  courts  and  the  decision  obtained  that  a  borrower  of  the  bank's 
paper  could  not  be  released  from  his  debt  by  raising  the  contention 
that  the  bank's  charter  was  unconstitutional.  Matters  were  further 
complicated  by  a  very  liberal  attitude  which  the  state  herself  took 
toward  debtors.  The  bank's  charter  granted  a  stay  of  execution 
where  the  plaintiff  refused  to  accept  bank  notes  from  the  debtor,  and 
later  this  was  amended  to  permit  the  defendant  a  replevin  of  sixty 
days  even  if  the  plaintiff  did  signify  his  willingness  to  accept  the 
bank  currency.  Delays  were  given  judgments  or  the  execution  of 
contracts  calling  for  payment  in  gold  or  silver  and,  while  these  meas- 
ures may  have  been  intended  to  favor  the  bank's  notes,  they  actually 
destroyed  a  sense  of  the  sacredness  of  an  obligation;  therefore,  any 
good  that  may  have  accrued  to  the  bank  from  these  measures  in 
making  its  notes  more  acceptable,  was  subsequently  lost  through 
the  contempt  the  debtors  held  for  their  obligations.  Too,  the  bank's 
officers  themselves  had  borrowed  for  their  own  uses  to  the  full  extent 


74  FINANCING  AN  EMPIRE 

of  the  law  and,  in  the  opinion  of  men  like  Governor  Edwards,  were 
now  guilty  of  aiding-  the  depreciation  of  its  currency  so  as  to  get  out 
from  under  their  obligations  at  the  smallest  possible  expense.  It  is 
said  that  these  men  were  in  a  position  to  borrow  more  than  one-sixth 
of  the  total  issue  of  notes  for  their  own  ends  and  that  in  some  cases 
they  transferred  to  others  their  rights  to  borrow,  thus  exceeding  the 
lawful  loan  limit.  (Senate  Journal,  1826-7,  p.  54,  Message  of  Gov. 
Edwards.)  When  Governor  Coles  appointed  a  competent  account- 
ant to  make  a  thorough  examination  of  the  books  of  the  bank  the 
following  figures  were  produced;  the  examiner  explained  that  al- 
though the  statement  did  not  balance,  he  had  auditor's  warrants  and 
bank  notes  to  cover  the  deficiency: 

Liabilities: 

Original  note  issue $84,085.00 

Discounts  earned  and  loans  repaid.  .  .    15, .347. 68     $100, 232. G8 

Assets: 

Unpaid  Loans: 

Renewed $40,321.07 

Bad  debts 31,969.60 

Expenses  of  branches 5,497.90 

Notes  returned  to  principal  bank.  .  .  .  19,947-00 

Two  per  cent  interest  to  note  holders.  903.61     $  98,639.18 


(Quoted  from  Illinois  Intelligencer,  .June  17,  1825.) 


After  that  only  the  cashier  was  retained  to  collect  the  debts  and  he 
was  placed  under  heavy  bond. 

It  is  estimated  that  in  the  course  of  the  ten  years  during  which 
the  bank  existed,  the  state  must  have  lost  more  than  one  hundred 
and  fifty  thousand  dollars  by  receiving  a  depreciated  currency,  a 
similar  amount  by  paying  it  out,  and  one  hundred  thousand  dollars 
through  loans  which  were  never  repaid  by  the  borrowers  and  which 
the  state  had  consequently  to  make  good  by  receiving  the  bills  of  the 
bank  for  taxes,  by  funding  some  at  six  per  cent,  and  by  paying  a  part 
in  cash. 

In  closing  up  the  affairs  of  the  bank,  the  state  found  it  necessary 
to  borrow  one  hundred  thousand  dollars.  This  amount  was  secured 
in  1831  from  Samuel  Wiggins  whom  contemporary  writers  describe 
as  a  very  shrewd  and  provident  man.  It  is  said  that  he  paid  over  a 
large  part  of  the  loan  to  the  state  in  bills  of  the  bank  which  had  been 


HISTORY  OF  BANKING  IN  ILLINOIS  75 

bought  up  by  him  at  a  low  price  arid  which  the  state  now  accepted 
from  him  at  par.  The  loan  was  extremely  unpopular  and  for  many 
years  afterwards  there  were  attempts  at  repudiation.  Ultimately, 
however,  it  was  paid,  principal  and  interest. 

At  no  time  did  the  state  bank  prove  not  to  be  a  serious  burden 
on  the  finances  of  Illinois.  Taxation  was  not  yet  a  popular  way  of 
raising  funds  and  but  a  meagre  amount  was  received  thereby.  In 
1821-22  the  state  received  only  $7,121.09  from  resident  tax  payers, 
and  $38,437-75  from  non-residents,  who  were  able  to  escape  a  large 
part  of  their  obligations  by  buying  up  the  depreciated  currency  at  low 
prices  and  applying  it  on  the  tax  debt  at  par.  From  the  state's 
capacity  as  landed  proprietor  and  speculator  and  the  rental  of  the 
salines,  $10,563.09  was  realized  and  $5,659.86  from  the  sale  of  Van- 
dalia  lots.  The  fact  that  non-residents  could  not  be  taxed  any  higher 
than  those  living  within  the  state,  or  taxed  at  all  within  five  years 
from  the  time  of  patenting  the  lands,  together  with  the  belief  that 
people  in  the  east  and  elsewhere  were  buying  up  Illinois  bank  notes 
at  a  discount,  caused  a  great  deal  of  discontent.  These  easterners 
were  depriving  the  people  of  Illinois  of  their  medium  of  exchange 
and  so  taxing  them  the  amount  of  the  depreciation.  Indeed,  the 
state's  first  revenue  law  was  about  as  bad  as  it  well  could  be  and 
only  gradually  were  its  defects  remedied.  Since  the  available  supply 
of  bank  notes  in  the  treasury  was  sufficient  for  only  about  one-half 
of  the  state's  expenses,  an  issue  of  auditor's  warrants  was  authorized 
carrying  six  per  cent  interest.  These  and  the  notes  circulated  side  by 
side  and  depreciated  together  until  in  1825,  after  the  canal  commission 
had  succeeded  in  disposing  of  six  thousand  dollars  of  bank  paper 
and  auditor's  warrants  at  twenty-seven  and  one-half  cents  on  the 
dollar,  a  committee  was  appointed  whose  duty  it  was  to  determine  at 
the  beginning  of  each  month  the  rate  at  which  the  warrants  and 
notes  should  be  paid  out  during  the  month.  The  auditor  was  in- 
structed for  the  time  being  to  rate  the  notes  at  three  dollars  for  one 
of  specie,  thus  making  the  state  borrow  money  at  two  hundred  per 
cent  interest,  and  the  situation  was  not  remedied.  (Laws  of  Illinois, 
1824-5,  p.  182.) 


CHAPTER  IV 
INTERNAL  IMPROVEMENT  MANIA 

Early  development  of  Chicago — Growing  problems  of  transportation — Plans  for  the 
Illinois-Michigan  Canal — Third  state  bank  established  under  private  management 
— Financing  state  improvements  through  the  bank — General  transportation 
projects — Cessation  of  work  on  public  improvements — Panic  of  1837 — Suspension 
of  specie  payments — Panic  of  1842 — Improvement  in  banking  methods — Illinois 
without  a  state  banking  system. 

History  shows  that  men  can  learn  lessons,  but  does  not  seem  to 
indicate  that  they  can  long  remember  them.  After  the  failure  of  the 
first  State  Bank  and  the  winding-up  of  its  affairs  in  1831,  for  a  brief 
period  the  legislature  was  determined  that  there  should  be  no  more 
banks  of  issue.  At  the  sessions  of  1830-31  and  1832-33  even  acts  of 
incorporation  of  all  kinds  contained  clauses  which  were  meant  to 
prohibit  the  exercise  of  banking  powers.  In  the  Senate,  however, 
there  soon  developed  a  sentiment  for  the  creation  of  a  bank  which 
should  be  on  a  specie  basis  and  as  early  as  1833  this  move  lost  by  only 
a  single  vote.  Thenceforth,  the  feeling  in  favor  of  a  bank  grew,  at 
first,  perhaps,  because  President  Jackson  had  rejected  a  national 
bank  for  the  country  and  some  minds  logically  supposed  that  so  long 
as  there  was  to  be  no  national  bank,  there  must  be  state  institutions. 
Also  the  trade  of  the  state  was  growing  and  there  was  not  enough 
currency  available  for  handling  it.  Spanish,  French,  and  Mexican 
coins,  and  a  few  United  States  silver  pieces  were  now  the  only  ac- 
ceptable medium  of  exchange.  In  reality,  however,  the  bank  was 
to  be  established  so  that  the  great  internal  improvement  mania,  al- 
ready beginning  its  disastrous  sweep  of  the  country,  might  be 
financed  without  resorting  to  the  unpopular  means  of  taxation.  So 
it  was,  that  as  early  as  1834  the  legislature  had  sufficiently  forgotten 
the  lessons  learned  by  the  troubles  of  the  first  state  bank  to  inaugu- 
rate another. 

Not  until  now  was  the  west  becoming  extensively  settled.  Illinois 
as  a  prairie  country  had  not  appealed  to  the  first  comers  as  an  ideal 
spot  for  settlement.     No  outside  source  of  supplies  was  available  on 

76 


(From  Parrish:  Historic  Illinois) 


pC        E        N 
MAP  OF  EAELY  ILLINOIS 


HISTORY  OF  BANKING  IN  ILLINOIS  *      •  79 

which  to  depend,  hence  it  was  important  that  men  choose  for  their  set- 
tlements land  that  was  fertile  and  which  would  likewise  supply  the 
desired  amount  of  game.  To  the  pioneer  the  proof  of  fertility  lay  in 
the  amount  of  vegetation  that  grew  on  the  land  in  its  uncultivated 
state.  Prospective  farms  in  Illinois  produced  only  a  tough  turf  and 
were,  therefore,  judged  without  further  investigation  to  he  lacking 
in  fertility.  Some  men — La  Salle  among  them — had  discovered  many 
years  before  that  Illinois  offered  unusual  attractions  to  the  pioneer 
because  the  fertile  fields  were  already  cleared  and  could  be  cultivated 
with  comparative  ease,  but  settlers  did  not  begin  to  pour  into  this 
western  state  in  important  numbers  until  about  1834.  Now  there  came 
first  groups  of  rovers  who  broke  their  way  into  the  wilderness,  and 
having  broken  the  land  sufficiently  to  make  it  attractive  to  men  of 
more  civilized  living  habits,  sold  out  and  pushed  on  into  deeper  wilder- 
ness. These  first  pioneers  were  followed  by  so  many  settlers  from  the 
east  that  Illinois  soon  found  herself  in  difficulties  with  other  states  be- 
cause she  was  draining  them  of  their  people. 

With  the  coming  of  those  used  to  cultivating  the  more  difficult 
farms  of  the  east,  Illinois  was  faced  with  the  problem  of  finding  a  suit- 
able way  of  marketing  the  abundant  products  of  her  many  new 
farms.  Every  thriving  village  intended  to  become  a  market  center 
and  much  rivalry — not  all  pleasant — was  resorted  to  by  these  settle- 
ments. 

Illinois  was  first  settled  from  the  south  and  west  where  a  way  to 
the  east  might  be  had  on  the  Ohio  River  and  to  the  south  on  the  Mis- 
sissippi. First  Philadelphia  and  then  Baltimore  had  monopolized 
such  trade  with  Illinois  as  came  from  the  east,  but  the  building  of  the 
Erie  canal  and  other  commercial  inducements  had  by  now  shifted  the 
commerce  from  those  cities  to  New  York.  Chicago  was  on  the  road 
to  New  York,  so  while  other  settlements  of  the  state  vied  with  one  an- 
other, Chicago  was  rapidly  becoming  the  real  trade  center  of  the  state. 
In  1832  she  had  been  but  a  small  market  with  only  two  stores.  In 
1833  when  the  village  was  incorporated  it  had  about  one  hundred  and 
fifty  inhabitants.  That  spring  a  few  houses  could  be  seen  on  the  lake 
shore,  but  by  autumn  the  village  had  grown  to  the  size  where  it  had 
a  street  a  mile  long.  When  a  year  old  there  were  two  thousand  in- 
habitants and  vessels  could  be  seen  putting  in  every  day  with  families 
coming  to  Chicago  to  live.  In  the  summer  of  1835  immigration  was 
so  great  that  flour  sold  at  twenty  dollars  a  barrel  and  there  was 
danger  of  famine.  "When  four  years  old  the  city  had  a  population  of 
eight  thousand.     There  were  then  one  hundred  and  twenty  stores, 


80  FINANCING  AN  EMPIRE 

twenty  of  which  transacted  wholesale  business  only.  By  1836  four 
hundred  and  fifty-six  boats  entered  the  harbor  bringing  goods  worth 
$325,203,  but  carried  away  exports  valued  at  only  one  thousand  dol- 
lars. Now  the  people  of  Illinois  who  had  imported  so  much  through 
Chicago  at  a  great  saving  realized  that  if  the  Great  Lakes  route  was 
economical  for  imports,  it  could  not  be  less  so  for  exports  and  shortly 
wheat  was  being  hauled  to  Chicago  in  great  quantities  for  shipment 
east.  Sometimes  farmers  came  from  as  far  as  two  hundred  and  fifty 
miles  away  to  ship  their  wheat  from  Chicago.  This  traffic  had  become 
so  great  in  1841  that  one  hundred  and  fifty  vessels  a  month  docked  at 
Chicago  and  even  all  these  could  not  carry  away  the  wheat  that  was 
brought  for  shipment  to  the  east.  By  1842  Chicago  had  become  the 
market  for  about  half  of  the  state  of  Illinois,  and  large  portions  of 
Indiana  and  Wisconsin ;  that  year  she  exported  586,907  bushels. 

Since  transportation  could  be  handled  at  Chicago  more  cheaply 
than  through  any  other  port  of  the  state,  there  now  arose  the  prob- 
lem of  getting  supplies  between  Chicago  and  the  interior.  As  early 
as  1825  and  again  in  1826  plans  were  brought  before  Congress  where- 
by the  Great  Lakes  could  be  connected  with  the  Illinois  River  by  a 
canal.  The  river  flowed  south  parallel  to  the  lake  shore  and  in  places 
was  not  ten  miles  away  from  it.  Furthermore,  the  two  branches  of 
the  Chicago  River,  uniting  from  north  and  south  to  flow  into  the 
lake,  contributed  to  lessen  even  that  distance.  In  dry  weather  be- 
tween the  south  branch  and  the  Des  Plaines  there  lay  a  portage  of 
not  more  than  three  miles  and  in  the  wet  season  a  lake,  sufficiently 
deep  to  carry  navigation  in  a  small  way,  covered  the  distance.  The 
two  rivers  were  so  nearly  of  the  same  level  that  a  change  in  the  breeze 
determined  whether  articles  floating  on  the  marshy  lake  would  drift 
into  the  Des  Plaines  and  then  the  Illinois  River,  or  into  the  Chicago 
River  and  thence  to  the  lake.  This  route  had  not  only  been  recog- 
nized but  regularly  used  by  the  fur  traders  from  Macinac,  and  in 
1827  Congress  granted  the  state  half  of  the  land  on  each  side  of  the 
canal  to  a  depth  of  five  sections;  every  other  section  was  reserved  for 
the  United  States  government.  It  was  agreed  then  that  the  canal 
was  to  be  free  of  toll  to  the  United  States  government  and  was  to 
be  started  in  five  years  and  completed  in  twenty.  In  1820  the  state 
legislature  passed  an  act  providing  for  men  to  survey  a  route,  select 
the  land  granted  by  the  United  States,  and  sell  it  in  tracts  or  town 
lots.  This  act  was  amended  in  1831  to  increase  the  efficiency  of  the 
board  and  to  decide  the  question  of  how  far  the  canal  was  to  extend. 


#*»//      /*.ur.*7*mrtr 


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(Courtesy  Central  Trust  Company) 

MAP  OF  CHICAGO  IN  1830 


HISTORY  OF  BANKING  IN  ILLINOIS  83 

It  was  then  agreed  that  a  part  of  the  distance  had  best  be  covered  by 
a  system  of  railroads,  and  so  another  step  was  taken  in  a  plan  for 
internal  improvements  which  before  long  was  to  become  one  of  the 
state's  great  disasters. 

In  spite  of  the  apparent  simplicity  of  the  situation,  the  engineer- 
ing feat  involved  was  to  meet  with  difficulties  because  the  bed  of  the 
Des  Plaines  was  some  two  feet  higher  than  the  lake.  Illinois,  how- 
ever, was  not  then  so  much  concerned  with  engineering  problems  as 
with  finding  a  way  of  financing  the  proposed  canal.  The  first  step 
in  this  direction  was  an  act  passed  in  1835  authorizing  the  governor  to 
negotiate  a  loan  on  the  canal  lands  and  toll  not  exceeding  one-half 
million  dollars.  As  finally  passed,  this  act  provided  that  the  loan 
be  made  on  the  credit  of  the  state  and  that  a  six  per  cent  stock, 
redeemable  after  1860,  and  to  be  sold  at  not  less  than  par,  be  issued. 
Also  the  commissioners  were  instructed  to  sell  lots  in  Chicago  and 
Ottawa  on  annual  installments  in  order  to  pay  for  the  canal. 

As  late  as  1835  a  banker  would  not  have  found  a  paying  business 
in  Chicago,  which  then  was  becoming  one  of  the  most  important  set- 
tlements of  the  state,  but  the  great  mania  for  land  speculation  which 
seized  the  entire  country  in  1836  and  led  hordes  of  settlers  into  Illinois, 
and  the  craze  for  internal  improvements  made  the  use  of  money  neces- 
sary. Even  though  lots  were  bought  and  sold  in  cities  that  existed 
on  paper  only  and  business  Mas  transacted  in  immense  volume — 
much  of  that  business  was  fictitious  only — Chicago  was  beginning  to 
feel  the  pinch  of  having  insufficient  money  and  to  demand  a  bank 
of  issue. 

Therefore,  in  1835  the  legislature  incorporated  another  state  bank 
and,  depending  upon  the  provision  of  the  constitution  of  1818  which 
permitted  all  banks  already  in  existence  to  continue,  extended  the 
charter  of  the  bank  at  Shawneetown.  This  time,  however,  the  state 
did  not  assume  the  responsibility  for  managing  the  bank,  the  payment 
of  its  obligations,  or  the  redemption  of  its  bills  in  specie.  One  lesson 
had  been  learned  and  the  state  was  content  to  leave  the  entire  man- 
agement of  the  new  bank  to  private  enterprise.  This  time  provisions 
were  made  for  one  and  one-half  million  dollars  of  capital  divided 
into  shares  of  one  hundred  dollars  each.  All  but  one  hundred  thou- 
sand dollars  of  this  was  to  be  subscribed  to  by  individuals,  the  state 
to  take  the  remainder,  or  any  part  of  it,  whenever  the  legislature 
might  think  proper  to  subscribe.  Also,  the  capital  stock  might  be 
increased  another  million  dollars  by  individual  subscriptions.      The 


84  FINANCING  AN  EMPIRE 

bank  was  to  commence  business  as  soon  as  two  hundred  and  fifty 
thousand  dollars  in  specie  had  been  paid  and  was  to  continue  under 
the  charter  until  January  1,  1860.  There  was  to  be  a  main  bank 
at  Springfield — not  to  be  the  capital  of  the  state  until  1839,  but  be- 
cause of  the  movement  of  the  population  northward  this  change  was 
made — and  not  more  than  six  branches  were  to  be  located  at  such 
points  as  the  president  and  directors  should  determine.  Interest  at 
six  per  cent  was  to  be  charged  on  loans  for  sixty  days  or  less,  eight 
per  cent  for  over  six  months.  Bills  and  notes  in  circulation  were 
limited  to  two  and  one-half  times  the  amount  of  capital  stock  paid  in, 
exclusive  of  the  amount  of  deposits,  and  loans  and  discounts  could 
never  exceed  three  times  the  amount  of  such  stock,  exclusive  of  de- 
posits. Full  power  was  given  the  bank  over  discounting  bills  and 
notes,  receiving  deposits,  buying  and  selling  bullion  and  bills  of  ex- 
change, and  issuing  bank  notes.  The  bank  was  prohibited  from 
owning  any  real  estate  except  the  land  on  which  its  buildings  might 
be  built  and  its  directors  were  forbidden  to  deal  either  directly  or 
indirectly  in  the  purchase  or  sale  of  any  kind  of  wares.  Each  of 
the  directors — nine  in  all — must  be  citizens  of  Illinois  and  each  must 
own  at  least  ten  shares  of  stock.  Every  shareholder  was  required  to 
make  a  first  payment  of  ten  dollars  in  specie  or  its  equivalent  and,  in 
voting,  the  plan  used  in  connection  with  the  territorial  Bank  of 
Illinois  which  gave  the  small  shareholders  more  than  their  propor- 
tionate amount  of  votes,  was  again  adopted. 

In  view  of  the  fact  that  the  bank's  money  was  to  be  devoted 
generously  to  land  speculation,  it  is  interesting  to  note  that  the  original 
provision  permitted  the  bank  to  add  to  its  capital  through  receiving 
deposits  and  also  through  borrowing  an  amount  not  to  exceed  one 
million  dollars,  all  of  which  might  be  re-loaned  at  not  more  than  ten 
per  cent  on  Illinois  real  estate;  each  loan  must  be  secured,  however, 
by  the  pledge  of  property  valued  at  not  less  than  twice  the  amount  of 
the  loan. 

Any  director  who  violated  any  of  the  provisions  regarding  note 
issues,  loans,  or  discounts  was  to  be  made  personally  liable  unless  he 
had  a  written  protest  incorporated  in  the  minutes.  Also,  the  bank 
was  to  liquidate  if,  upon  the  demand  of  any  note  holder,  specie  was 
not  forthcoming  within  ten  days,  and  a  penalty  of  ten  per  cent  was 
to  be  paid  all  such  note  holders  until  their  notes  were  redeemed.  No 
note  could  be  issued  for  less  than  five  dollars  and  no  laws  for  the 


HISTORY  OP  BANKING  IN  ILLINOIS  87 

relief  of  debtors,  such  as  had  readied  so  absurd  a  point  in  the  admin- 
istration of  the  last  state  bank,  were  to  be  enacted. 

In  its  relation  to  the  state,  the  bank  was,  as  mentioned  above,  to 
reserve  one  hundred  thousand  dollars  of  the  stock,  which  the  legis- 
lature might  purchase  if  and  when  desired.  In  lieu  of  taxes  the 
state  treasury  must  be  paid  one-half  of  one  per  cent  of  the  paid-in 
capital  stock  on  January  first  of  each  year,  and  the  charter  must  be 
forfeited  if  there  occurred  any  interference  on  the  part  of  the  officers 
of  the  bank  with  the  election  of  state  officers. 

Books  for  subscriptions  to  the  stock  of  the  state  bank  were  opened 
on  April  10,  1835,  and  in  less  than  three  weeks  the  stock  was  several 
times  over-subscribed.  According  to  the  press  of  the  time,  applica- 
tions amounted  to  something  over  eight  millions  instead  of  the  $1,400 
allowed.  Therefore,  the  commissioners  met  to  pro-rate  the  stock  and 
do  all  in  their  power  to  put  it  into  the  hands  of  residents  of  the  state. 
Subscriptions  by  foreigners  and  corporations  were  stricken  from  the 
lists  and  those  of  residents  were  cut  down  to  one  thousand  dollars 
and  then  pro-rated.  Nevertheless,  large  blocks  did  go  into  the  hands 
of  eastern  capitalists,  probably  through  using  the  names  of  Illinois 
citizens  for  a  number  of  small  amounts,  and  when  the  bank  was  opened 
less  than  a  half  dozen  interested  men  owned  an  overwhelming  majority 
of  the  stock.  The  bank  always  was  dominated  by  non-resident  share- 
holders, but  nevertheless  was  under  as  good  management  as  probably 
could  be  found.  Thomas  Mather  of  Kaskaskia  was  made  president 
and  he,  together  with  John  Tillson  of  Hillsboro  and  Godfrey,  Gilman 
&  Company  of  Alton,  through  stock  ownership,  either  personal  or 
indirectly  through  that  held  in  the  east,  had  control  over  the  bank. 

The  bank  opened  for  business  in  July,  1835,  at  Springfield,  and 
before  the  end  of  the  year  opened  branches  at  Vandalia,  Galena, 
Jacksonville,  Alton,  and  Chicago.  The  following  year  permission 
was  received  to  issue  the  additional  million  of  capital  stock  provided 
in  the  first  act,  the  time  during  which  specie  payments  might 
be  suspended  without  forfeiting  the  bank's  charter  was  extended  to 
sixty  days,  and  additional  branches  were  opened  at  Danville,  Quincy, 
Belleville,  and  Mt.  Carmel.  For  these  added  privileges,  the  bank 
agreed  to  take  over  the  payment  of  the  Wiggins  loan  made  at  the 
time  of  the  closing  of  the  first  state  bank  and,  as  a  result,  a  large  addi- 
tional block  of  the  bank's  shares  came  into  the  possession  of  Mr. 
Wiggins. 

It  will  be  recalled  that  the  constitution  of  1818  had  limited  the 


88  FINANCING  AN  EMPIRE 

banking  institutions  of  the  state  to  the  state  bank  and  its  branches, 
and  to  the  two  territorial  banks  which  were  then  in  existence — the 
Bank  of  Illinois  at  Shawneetown,  and  the  bank  at  Cairo.  Since  the 
Cairo  bank  had  never  become  sufficiently  organized  to  accept  a  charter, 
and  the  Bank  of  Illinois  had  gone  out  of  business  in  1823,  it  might  be 
assumed  that  their  charters  had  been  forfeited.  However,  in  their 
eagerness  to  share  in  the  tide  of  prosperity  which  was  now  flowing 
into  the  country  because  of  the  great  land  speculations  and  the  immi- 
gration from  the  east,  the  Bank  of  Cairo  was  brought  to  life  in  a 
rather  ineffectual  way — again  at  Kaskaskia,  the  original  site  of  pro- 
posed operations — and  the  Bank  of  Illinois  was  reorganized;  the 
charter  which  was  to  have  expired  on  January  1,  1837  was  extended 
until  1857.  After  a  stormy  controversy,  finally  settled  in  the  courts, 
it  was  agreed  that  the  charters  of  these  banks  were  not  now  void  and 
they  were  permitted  to  do  business. 

So  great  had  become  the  prosperity  of  the  section  that  by  1837 
the  state  bank  was  paying  liberal  dividends  and  appealed  to  advocates 
of  the  great  internal  improvement  plans  as  the  logical  means  of  fi- 
nancing their  projects,  for  to  pay  for  these  improvements  by  taxation 
would  bring  great  unpopularity  to  the  politicians.  During  the  first 
year  and  a  half  of  its  existence  the  state  bank  had  declared  dividends 
amounting  to  seven  dollars  and  seventy-five  cents  on  each  share  of 
the  capital  stock,  or  nine  per  cent  on  the  paid-in  capital.  If,  then,  the 
state  was  to  become  owner  of  a  large  amount  of  this  stock,  why  could 
not  the  proceeds  therefrom  be  used  to  finance  the  state's  improve- 
ment projects?  It  was  decided  at  once  that  rmrchases  of  such  stocks 
would  be  made  and  the  earnings  from  them  used  to  pay  interest  on  an 
eight  million  dollar  loan  to  finance  the  improvement  projects.  There- 
fore, the  stock  of  the  state  bank  was  promptly  increased  by  two  mil- 
lion dollars,  all  to  be  subscribed  for  by  the  state  and  paid  for  by  an 
issue  of  state  bonds  which  must  be  sold  at  not  less  than  par.  This 
venture  succeeded  so  well  that  shortly  cash  payments,  received  from 
the  sale  of  bonds,  were  turned  into  the  bank  and  five  directors  repre- 
senting the  state  were  added  to  the  original  nine  members  of  the 
board. 

The  people  of  Chicago  were  now  asking  for  still  faster  transpor- 
tation of  freight.  They  urged  that  the  Erie  railroad,  which  could 
run  while  the  Erie  canal  was  still  frozen,  be  hastened.  When  com- 
pleted, they  said,  Chicago  would  be  but  seventy-four  hours  from  New 
York  instead  of  the  twelve  to  fourteen  days  required  to  move  freight 


SHAWNEETOWN  BANK,  BUILT  IN   1840 


STATE  BANK  OF  ILLINOIS,  SPRINGFIELD,  1835 


HISTORY  OF  BANKING  IN  ILLINOIS    ■  91 

by  boat.  Since  other  Illinois  markets  could  be  supplied  through  Chi- 
cago, they,  too,  stimulated  the  demands  for  further  improvements. 
Galena  could  receive  goods  through  Chicago  two  months  sooner  and 
at  less  cost  than  in  any  other  way;  the  Illinois  River  could  be  used  as 
a  means  of  transportation  into  the  central  part  of  the  state  as  far  as 
Peoria  and  sometimes  even  to  Ottawa.  By  1831  one  hundred  and 
eighty-six  river  steamers  had  arrived  at  Naples  and  in  1837  a  packet 
was  advertised  as  plying  between  Peoria  and  Pittsburgh.  As  a  re- 
sult of  all  this,  instead  of  the  small  Chicago  canal  originally  planned, 
the  internal  transportation  system  rapidly  developed  until  it  knew 
almost  no  bounds  and  the  state  was  rapidly  becoming  involved  in  a 
scheme  from  which  she  would  later  extricate  herself  only  with  the 
greatest  difficulty.  Although  committees  were  appointed  to  investi- 
gate and  make  proper  recommendations  on  what  improvements  had 
best  be  made,  their  work,  on  the  whole,  seems  to  have  been  done  not 
so  much  with  a  view  to  recommending  what  could  be  afforded  under 
the  circumstances,  as  to  satisfying  everybody  concerned.  The  board 
in  charge  of  the  railroad  building  plans  estimated  the  cost  at  eight 
thousand  dollars  a  mile  or  less,  and  recommended  an  expenditure  of 
$9,250,000  in  railroads;  in  addition,  the  recommendation  included 
a  two  hundred  thousand  dollar  appropriation  to  be  given  those  coun- 
ties which  were  so  located  that  they  would  not  profit  by  the  pros- 
pective railroads.  Before  long  the  bill  for  internal  improvements 
inaugurated  in  1837  had  gone  so  far  that  if  carried  out  it  must  have 
met  the  wishes  of  the  wildest  enthusiast  and  visionary.  In  addition 
to  the  original  canal  between  the  Illinois  River  and  the  Great  Lakes 
the  bill  now  included  the  immediate  construction  of  seven  railroad 
lines  and  the  dredging  of  all  the  important  rivers. 

In  1837  the  state  determined  upon  a  plan  for  securing  more 
bank  stock  with  which  to  finance  these  tremendous  undertakings  and 
at  the  same  time  to  make  the  banks  fiscal  agents  for  the  receipt  and 
disbursement  of  the  great  sums  to  be  handled.  Accordingly,  an  act 
was  passed  increasing  the  capital  stock  of  the  Shawneetown  bank  by 
one  million  four  hundred  thousand  dollars,  one  million  dollars'  worth 
of  which  was  to  be  taken  by  the  state,  and  adding  another  two  mil- 
lion to  the  capitalization  of  the  state  bank.  This  meant  that  the 
capital  stock  of  the  Bank  of  Illinois  at  Shawneetown  was  increased 
from  $300,000  to  $1,700,000  and  that  of  the  State  Bank  from  $2,500,- 
000  to  $4,500,000.  The  state,  to  finance  this  stock  purchase,  au- 
thorized the  flotation  of  a  loan  not  to  exceed  three  million  dollars, 


92  FINANCING  AN  EMPIRE 

carrying  an  interest  rate  of  six  per  cent  or  less,  redeemable  any  time 
after  1860.  (Laws  of  Illinois,  1836-7,  p.  18,  sec.  3.)  As  the  banks 
now  stood,  private  individuals,  who  under  the  original  plan  were  to 
own  all  but  a  nominal  amount  of  the  stock,  actually  held  only  two 
hundred  thousand  dollars'  worth  of  the  capital  stock  in  the  bank 
at  Shawneetown  and  only  one  million  four  hundred  thousand  dollars 
in  the  State  Bank.  Nevertheless,  although  the  state  held  such  an 
overwhelming  proportion  of  stock  in  both  banks,  private  stockholders 
still  retained  a  majority  of  the  directors. 

Those  who  so  optimistically  ordered  the  flotation  of  the  new  issue 
of  bonds  for  the  purchase  of  bank  stock  had  roseate  dreams  of  sell- 
ing the  entire  issue  at  well  over  par — perhaps  at  a  premium  of  as  much 
as  ten  per  cent.  This  premium  would  go  to  swell  the  interest  fund, 
soon  to  be  further  increased  by  the  payment  of  dividends  on  the  new 
bank  stock.  In  fact,  if  everything  really  had  worked  out  so  excel- 
lently, there  would  have  been  plenty  of  money  to  pay  the  interest 
on  all  bonds  outstanding  and,  possibly,  also  leave  a  large  surplus. 
But  the  general  public  was  not  so  trusting  as  the  legislature;  the 
bonds  could  never  be  sold  even  at  par.  To  prevent  the  failure  of  the 
whole  undertaking,  the  banks  themselves  took  the  bonds  at  par  as 
cash — $2,665,000  of  them.  Shawneetown,  it  is  said,  sold  its  allot- 
ment of  nine  hundred  thousand,  but  the  remainder,  taken  over  by  the 
State  Bank,  it  is  believed,  was  never  sold.  Nevertheless,  these  bonds 
were  treated  as  capital  and  the  business  of  the  bank  extended  accord- 
ingly. Thus,  for  a  time,  the  State  Bank,  at  least,  continued  busi- 
ness on  dead  capital  and  assumed  the  consequent  risk  of  failure. 

Through  1836  and  the  spring  of  1837  all  went  well  with  the 
banks.  Then  a  sudden  crash  came  in  the  east ;  values  declined,  banks 
failed,  and  individuals  were  ruined  on  every  hand.  At  first  the  west 
believed  herself  too  far  away  to  be  drawn  into  the  destruction.  In 
Illinois,  particularly,  did  it  seem  that  the  banks  and  the  speculation 
in  western  lands  had  little  in  common  with  eastern  difficulties,  ex- 
cept, perhaps,  that  land  speculation  had  developed  here  at  the  same 
time — a  psychological  occurrence,  no  doubt.  Illinois  decided  that  she 
could  keep  out  of  the  developing  difficulties.  Even  supposedly  wise 
financiers  put  their  heads  together  and  agreed  that  by  hastening  the 
internal  improvement  plans  discontented  settlers  from  the  east  could 
be  brought  to  Illinois,  that  these  incoming  people  would  keep  up 
prices  in  the  state  and  so  enable  Illinois  to  become  the  only  prosperous 
spot  in  the  country.     New  plans  were  entered  into  with  great  haste 


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(Courtesy  of  Chicago  Historical  Society) 


JOHN  MAESHALL 
President  of  the  Bank  of  Shawneetown. 


HISTORY  OF  BANKING  IN  ILLINOIS.  95 

and  inadequate  preparation.  Furthermore,  to  keep  all  sections  of 
the  state  satisfied,  arrangements  were  made  to  have  construction  on 
all  the  railroads  go  on  simultaneously.  Naturally,  this  prevented 
any  concerted  effort  and  nothing  could  be  completed.  Then,  side 
by  side  with  this  great  public  enterprise,  flourished  private  undertak- 
ings. All  this  was  made  additionally  difficult  by  the  fact  that  the 
financing,  too,  was  spread  in  a  haphazard  way.  Instead  of  giving 
entire  blocks  of  her  bonds  to  brokers,  who  could  keep  up  their  prices, 
the  state  sold  them  everywhere  and  any  attempt  on  the  part  of  large 
holders  to  keep  some  stability  on  the  market  resulted  in  the  dump- 
ing of  large  quantities  in  odd  amounts  at  lesser  prices.  Finally, 
after  a  stormy  career,  the  legislature,  in  1838,  voted  for  the  cessa- 
tion of  work  upon  the  internal  improvement  system  and  it  was  per- 
manently abandoned.  Of  all  the  railroad  lines  projected,  only  the 
Galena  and  Chicago  Union,  the  Illinois  Central  from  La  Salle  to 
Cairo,  and  one  from  Danville  to  Meredosia,  suggesting  the  line  of 
the  Wabash,  are  now  in  existence  in  any  extensive  way.  The  state 
had  incurred  a  debt  amounting  to  more  than  six  million  dollars  and 
had  to  show  only  a  small  section  of  completed  railroad  from  Spring- 
field to  Meredosia  and  a  network  of  unfinished  roads  stretching  in 
all  directions  across  the  state  joining  great  cities  which  existed  only 
on  paper.  Because  this  work  was  allowed  to  lie  idle  and  uncom- 
pleted, it  soon  became  worthless  and  could  not  be  reclaimed.  The 
state  had  withdrawn  too  early  to  obtain  any  considerable  advantages 
from  her  great  scheme  for  bringing  contentment  to  a  harassed  world 
and  now  Illinois  had  only  her  debts  to  pay. 

In  spite  of  the  optimism  of  the  financiers  of  the  section,  the  banks 
of  Illinois  became  so  involved  in  the  panic  of  1837  that  in  May  of 
that  year  it  seemed  best  that  they  should  suspend.  Governor  Duncan 
called  a  special  session  of  the  assembly  to  legalize  the  suspension  of 
specie  payments  in  order  that  the  charter  might  not  be  forfeited  in 
accordance  with  the  law.  Also,  contrary  to  the  original  intention, 
provisions  were  made  for  the  relief  of  the  bank's  debtors  during  the 
time  of  suspension  whereby  they  were  permitted  to  pay  their  notes 
in  installments.  While  the  banks  were  not  actually  closed,  they  were 
greatly  limited  in  their  undertakings.  Xotes  could  now  be  issued 
only  up  to  the  amount  of  capital  paid  in  and  dividend  payments  were 
prohibited  until  specie  payments  were  again  resumed.  No  specie 
could  be  disposed  of  except  in  amounts  of  five  dollars  or  less  for 
change.     Monthly  statements  were  to  be  supplied  the  governor  and 


96  FINANCING  AN  EMPIRE 

also  the  newspaper  owned  by  the  state  printer.  The  state  was  now 
given  permission  to  sell  its  holdings  of  bank  stock  to  individuals  so 
that  interest  might  be  paid  on  its  internal  improvement  debt. 

By  autumn  hard  times  had  started  in  earnest  and  with  the  bank 
powerless  to  aid  in  tiding  over  the  situation,  forced  to  reduce  the  dis- 
counting of  notes  to  a  minimum,  and,  in  spite  of  the  laws  for  the 
relief  of  debtors,  to  bring  suit  against  many  for  debt  payment,  a 
growing  feeling  of  resentment  set  in.  Ever  since  their  beginning  the 
banks  had  been  a  bone  of  contention  between  the  two  political  parties 
of  the  time — the  Wings,  who  believed  there  should  be  only  a  national 
bank,  and  the  Democrats,  who  wanted  state  banks  on  a  specie  pay- 
ment basis.  Now,  however,  the  Whigs  remained  loyal  to  the  banks 
but  the  Democrat  press  went  to  much  trouble  to  bring  about  the 
abolition  of  a  system  which  was  not  on  a  specie  payment  basis. 

In  1838,  a  little  over  a  year  after  the  suspension  of  specie  pay- 
ments, prosperity  returned  sufficiently  to  resume  them,  but  a  second 
crisis  followed  in  1839,  when  news  came  that  banks  in  the  east  and 
south  had  suspended  specie  payment. 

The  credit  of  the  state  soon  had  become  so  impaired  that  its  bonds 
had  no  staple  value  and  were  bandied  about  in  the  markets  of  New 
York  and  London  at  prices  as  much  as  seventy-five  per  cent  below 
par.  Liabilities  amounted  to  $11,107,919.44  which  called  for  annual 
interest  payments  of  $637,800.  Since  the  state  held  the  majority 
of  bank  stock  the  decline  in  bank  credit  followed  that  of  the  state, 
and  soon  the  stock  was  quoted  at  but  fifty  cents  on  the  dollar  and 
even  at  that  price  the  banks  could  not  redeem  their  outstanding  bills. 
Although  an  attempt  was  made  to  avoid  disaster  by  permitting  a 
limited  amount  of  notes  to  be  issued.  In  1839  their  mission  as  banks 
of  issue  came  to  an  end.  For  a  few  years  after  that  the  State  Bank 
continued  to  deal  in  exchange  and  to  disburse  the  canal  fund,  but  by 
1843  the  legislature  had  come  to  a  realization  of  the  situation  and 
forced  the  banks  into  liquidation.  This  came  partly  as  a  result  of 
the  efforts  of  Governor  Carlin  who  believed  that  bank  and  state 
should  be  divorced.  He  proclaimed  the  incorporation  of  fiscal  institu- 
tions to  regulate  the  finances  of  the  country  contrary  to  the  genius 
of  a  free  people,  saying  that  the  channels  of  business  should  not  be 
filled  up  and  controlled  by  a  circulating  medium  which  could  be  ex- 
panded and  contracted  at  the  pleasure  of  only  a  few.  Also,  he  urged 
an  investigation  to  learn  whether  or  not  the  bank  actually  tried  to 
serve  the  business  and  public  interests  of  the  state  or  only  the  specu- 


GOVERNOR  THOMAS  FORD 
1842-1846 


HISTORY  OF  BANKING  IN  ILLINOIS    .  99 

lators.  Through  this  investigation  it  was  learned  that  many  irregu- 
larities had  taken  place.  Among  them  was  the  permission  given 
Wiggins  to  use  his  bank  stock  as  collateral  for  a  loan  with  which 
to  meet  the  payments  due  on  the  stock.  It  was  found  that  the  cashier, 
of  the  Chicago  branch  had  loaned  considerable  sums  on  port  specula- 
tion while  he  denied  accommodation  to  others,  and  that  the  bank  had 
lent  aid  to  schemes  for  building  up  the  city  of  Alton  as  a  commer- 
cial rival  to  St.  Louis.  Alton  centered  its  activities  in  firms  of  New 
England  men  who,  by  virtue  of  their  influence  obtained  through 
their  large  holdings  of  stock  in  the  banks,  and  secured  loans  and  dis- 
counts amounting  to  some  eight  hundred  thousand  dollars.  This 
money,  it  developed,  was  used  in  attempts  to  turn  the  lead  trade  of 
the  upper  Mississippi  from  St.  Louis  to  Alton,  to  operate  a  corner  in 
lead,  and  to  make  extensive  purchases  of  smelters.  The  bank  at 
Alton,  itself,  through  these  and  other  agencies  had  come  very  close 
to  buying  and  selling  lead  speculatively.  In  fact,  the  interest  of 
Alton  in  the  new  state  bank  was  sufficient  to  control  the  manage- 
ment and  cause  it  to  do  all  in  its  power  to  aid  in  building  up  Alton 
and  divert  trade  thither.  In  addition  to  lead,  the  bank  also  speculated 
in  lots  and  eventually  these  operations  lost  an  amount  estimated  at 
more  than  one  million  dollars.  Instead  of  building  up  Alton,  as  had 
been  planned,  these  operations  crushed  the  city  and  brought  the  bank, 
in  less  than  two  years'  time,  to  the  very  verge  of  bankruptcy. 

During  the  troubles  with  the  State  Bank  it  was  hoped  that  the 
Bank  of  Illinois  at  Shawneetown  might  overcome  its  difficulties  and 
resume  specie  payments.  The  day  set  for  this  resumption — June  15, 
1842 — passed,  however,  and  notes  which  had  been  within  six  or  seven 
per  cent  of  par  at  Chicago  were  soon  sold  at  a  ten  per  cent  discount. 
John  Marshall,  who  had  been  an  able  president  of  the  bank,  then 
refused  reelection  and  retired  in  January.  1843.  On  January  24. 
1843,  an  act  was  passed  to  diminish  the  state  debt  and  put  the  State 
Bank  into  liquidation;  on  the  following  day  another  act  did  the  same 
thing  for  the  Bank  of  Illinois.  The  banks  were  then  required  to 
deliver  up  their  state  bonds,  scrip,  and  other  evidences  of  state  in- 
debtedness in  exchange  for  their  stock.  All  of  these  were  quoted  at 
about  the  same  level,  so,  on  the  surface  at  least,  the  exchange  seemed 
fair  enough.  However,  it  was  obviously  not  fair  for  the  state  thus 
to  leave  the  burden  of  past  losses  of  the  banks  upon  the  individual 
stockholders,  who  had  paid  in  good  money  instead  of  the  bonds  with 
which  the  state  had  flooded  the  market.     Fair  or  unfair,  the  scheme 


100  FINANCING  AN  EMPIRE 

worked.  The  state  reduced  its  indebtedness  by  over  two  million  dol- 
lars and  the  banks  finally  wound  up  their  business  at  the  expense 
of  their  stockholders,  holders  of  bills,  and  other  creditors. 

Governor  Ford,  in  his  History  of  Illinois,  reveals  the  banks  in  a 
more  kindly  light  than  did  Governor  Carlin's  investigation.  Accord- 
ing to  Ford,  to  obtain  favor  from  the  legislature,  the  banks  had  to 
make  loans  to  the  state.  He  maintains  that  the  bank  at  Shawnee- 
town  alone  first  was  induced  to  lend  the  state  eighty  thousand  dollars 
with  which  to  finish  the  State  House  and  then  in  1839  another  two 
hundred  thousand  dollars  was  demanded  for  the  use  of  the  Commis- 
sioners of  Public  Works.  Governor  Carlin  himself  demanded  this 
loan  and  promised  to  give  the  bank  one-half  million  in  improvement 
bonds  as  security;  this  promise,  however,  he  never  kept.  Ford  also 
claims  that  if  the  banks  had  swindled  the  public  of  only  one-quarter 
as  much  as  they  had  themselves  been  swindled  of  by  both  the  state 
and  individuals,  these  institutions  would  have  remained  perfectly 
solvent  and  able  to  pay  every  dollar  of  their  debt,  instead  of  explod- 
ing with  a  crash  which  carried  ruin  all  over  Illinois  and  into  the 
neighboring  states  and  territories. 

In  connection  with  the  downfall  of  the  state  banks  in  Illinois,  it 
is  interesting  also  to  trace  the  part  national  banks  of  the  day  played 
in  that  disaster.  The  question  of  a  national  currency  and  banking 
absorbed  much  attention  between  the  years  1834  and  1840.  At  first 
the  Second  United  States  Bank  was  in  a  position  to  regulate  the  note 
issues  of  state  banks  and  the  exchange  and  care  of  government  funds. 
Really,  it  was  a  private  banking  institution  powerful  enough  to  be 
able  to  dictate  to  the  government.  President  Andrew  Jackson,  a 
Democrat,  was  so  opposed  to  a  system  which  he  chose  to  call  "the 
monster,"  that  when  the  proper  time  came  he  refused  a  recharter  and 
removed  government  deposits  from  its  care.  Jackson  endeavored  to 
justify  his  action  in  spite  of  all  protest  by  his  declaration  and  belief 
that  the  United  States  Bank  was  using  its  power  to  oppress  the 
state  banks  and  also  to  bring  on  financial  stringencies  through  a 
policy  of  expanding  and  then  quickly  contracting  credit.  In  1835  the 
Democratic  convention  decided  that  the  state  banks  had  proved  them- 
selves to  be  as  able  and  valuable  as  the  United  States  Bank  ever 
had  been  and  so  the  state  banks  by  the  year  1836,  uncontrolled  by  the 
United  States  Bank,  were  issuing  unlimited  amounts  of  notes  which, 
instead  of  finding  their  expected  place  in  business,  were  being  used 
almost  entirely  by  the  speculators  of  the  day  in  the  purchase  of  public 


HISTORY  OF  BANKING  IN  ILLINOIS  103 

lands.  Soon  bank  note  credit  everywhere  had  been  extended  greatly 
beyond  the  need  of  legitimate  business  and  the  situation  had  become 
such  that  something  had  to  be  done  to  avoid  accepting  such  currency 
in  payment  for  public  lands.  President  Jackson  then  issued  his 
so-called  "specie  circular"  which  forbade  the  use  of  any  but  specie 
and  the  notes  of  specie-paying  banks  on  land  purchases.  This  brought 
great  unpopularity  upon  the  President  and  when,  in  1837,  his  last 
official  act  was  to  pocket  an  act  repealing  this  circular,  his  opponents 
held  it  up  as  evidence  of  his  willingness  to  go  to  any  length  to  sub- 
ordinate the  welfare  of  the  country  to  his  own  whims. 

President  Jackson's  specie  circular  was  consistent  with  his  hard- 
money  views  and  his  honest  desire  to  save  the  lands  of  the  govern- 
ment from  the  hands  of  speculators  and  the  Treasury  from  loss.  But 
since  there  were  such  quantities  of  paper  money  afloat  which  had  been 
issued  primarily  to  supply  the  speculative  needs,  little  wonder  that 
this  circular  had  a  large  part  to  play  in  the  bursting  of  the  bubble 
of  prosperity  in  America. 

To  be  sure,  this  was  only  a  contributing  cause  and  not  at  all  the 
real  reason,  for  the  monetary  stringency  was  first  felt  abroad.  Eng- 
land experienced  it  in  the  spring  of  1837  and  at  once  stopped  buying 
her  usual  amount  of  tobacco  and  cotton.  Planters  had  borrowed  in 
anticipation  of  the  sale  of  these  crops  abroad  and  had  invested  their 
borrowed  money  in  slaves  and  lands  at  inflated  prices.  To  add  to  the 
difficulties,  British  banks,  in  need  of  money  at  home,  had  begun  to 
call  their  loans  placed  in  America  which,  together  with  the  curtail- 
ment of  purchases  and  the  President's  stand  on  specie,  soon  made  the 
panic  become  general  here  as  it  already  was  abroad.  The  city  banks, 
which  were  closest  to  manufacturing  and  foreign  trade  were  particu- 
larly affected,  but  those  in  agricultural  regions,  dependent  upon  the 
sale  of  crops,  also  suffered  greatly.  As  is  to  be  expected,  President 
Jackson  was  blamed  for  all — little  as  he  deserved  real  censure. 

As  the  panic  progressed  State  Bank  paper  fell  more  and  more 
into  disrepute,  becoming  progressively  more  worthless  in  terms  of 
eastern  exchange,  and  soon  the  whole  currency  of  the  state,  because 
it  had  consisted  largely  of  bank  notes,  fell  into  hopeless  confusion. 
In  the  fall  of  1842  state  officers  had  to  refuse  the  acceptance  of  State 
Bank  paper  for  taxes  and  by  the  following  July  business  in  Chicago 
and  St.  Louis  was  said  to  be  very  nearly  upon  a  specie  basis.  By 
autumn  little  was  in  circulation  in  Chicago  other  than  specie,  the 
notes  of  the  State  Bank  of  Indiana^one  of  tha  few  state  institutions 


104  FINANCING  AN  EMPIRE 

which  had  been  successful — and  sound,  but  illegally  issued  paper  of 
which  we  shall  hear  more  later. 

In  1842  there  occurred  another  flare-back  of  the  panic  which  had 
begun  in  1837  and  from  that  time  on  banking  methods  showed  a 
tendency  to  grow  sounder  in  nature.  Thereafter  deposit  banking 
began  to  assume  a  greater  place  and  note  issues  were  no  longer 
relied  upon  as  the  sole  source  of  banking  income.  Nevertheless,  State 
Bank  notes  could  not  be  entirely  eliminated  from  circulation  and  con- 
tinued to  annoy  business  throughout  the  country  until  the  time  of  the 
Civil  war.  Between  the  years  1837  and  1843  such  notes  in  circula- 
tion shrunk  in  amount  from  $149,000,000  to  $59,000,000,  or  from  a  per 
capita  rate  of  $13.87  to  $6.87.  (Scroogs:  A  Century  of  Banking 
Progress,  p.  118.)  As  the  banks  lost  their  hold  on  the  finances  of  the 
state,  currency,  which  until  now  had  consisted  largely  of  bank  notes, 
became  less  and  less  useful.  Depreciated  bank  notes  had  driven  out 
good  money  and  virtually  left  the  people  without  a  circulating  medium 
of  any  sort.  After  the  state  found  it  necessary  to  refuse  the  notes  of 
its  bank  for  taxes,  Illinois  bonds  sold  at  fourteen  cents  on  the  dollar. 
So  scarce  had  a  circulating  medium  become  that  men  of  property  and 
excellent  credit  were  unable  even  to  pay  their  taxes.  Meantime 
the  State  Bank  had  again  begun  to  increase  its  note  issues,  instead 
of  reducing  them  as  instructed  under  the  suspension  act.  At  times 
it  met  with  opposition,  but  often  without  attracting  any  attention  at 
all  went  on  its  way,  and  even  began  the  erection  of  an  expensive 
banking  house,  all  contrary  to  instructions.  Throughout  1841  and 
1842  the  Democrats  attacked  the  bank  violently  and  by  the  next 
summer  both  Whigs  and  Democrats  were  agreed  that  the  banks  must 
resume  specie  payments  or  forfeit  their  charters.  Even  a  year  before 
the  bank  stock  had  fallen  to  thirty-seven  cents  on  the  dollar  and  in 
the  spring  of  1842  the  credit  of  its  notes,  even  in  Illinois,  dropped  to 
forty-four  cents  on  the  dollar. 

Of  course,  the  banks  were  unable  to  resume  specie  payments  as 
required,  and  so  for  the  next  nine  years  the  currency  of  the  Indiana 
banks  flourished  as  a  medium  both  sound  and  lawful.  Also,  there 
was  a  considerable  amount  of  paper  from  other  states,  especially 
Michigan,  also  legal  but  not  as  sound  financially  as  it  might  have 
been.  Banking  functions,  other  than  the  issuing  of  notes,  were  per- 
formed by  private  banking  firms  existing  in  all  the  principal  towns 
and  were  subject  to  no  supervision  by  the  state.  Consequently,  unless 
competition  forbade,  .they  charged  exorbitant  interest  rates,  as  much 


'/rt 


Twelve  &ahalf  Cents 


(Courtesy  WaUlo  C.  Moore) 


0hUB  ''r^m'k'-nrttioU 


.1  / 

:  .,/„*»,„,  TwoDolhirs  Fifty >,>/,,//„/,. 


r 


■Illinois  A  MiihioiinC'aualFiEud" 


■///////' 


r^r/Sne^tt 


CANAL  INDEBTEDNESS. 


*'»■/// 


Due  from  the  Board  of  Commissioners 

OF  THE  ILLINOIS  AND  MICHIGAN  CANAL,  FOR  WORK  DONE  ON  SAID  CANAL, 

TWO   DOLLARS  AND  FIFTY  CENTS, 

vJtiek  they  promiie  to    pay  the  Beater  of  this  vhen  funds  are    provided  for  that  purpose. 
LOCKl'OIU*         J&s.,,       $?     IB4& 


mmm 


■   A(--L'.{  -'<•-  ■•-  •''/     Sk-'" 


V 


(Courtesy  1).  C  Wismerl 


-■v--w.A,.-fc.-fc  .•»►. ■»►:*.. ■»».■».  •»---*.-'«>--\.:-^.'.-%,-.'w2^c-^-L-v.-^,'i^,s-v.;-v 


NO.  __4 


.Vt/iefy  days' after  elate,  pay  iu  tfu-  order  of&±*  a1  //^-ma.// 


Treasurerof  the  lllino^  A'WirHigan    Canal,   S"UJO  Dollars,  and 

Lockport,  ^^f^t- 
Ict.  Ctm/ffpr  /L*-™,,7^  Prest 


charge  the  same  to  the  ("anal  Fund.     Lockport 


X^l83i> 


(Oouitesy  Chicago  Historical  Society) 


HISTORY  OF  BANKING  IN  ILLINOIS 


10- 


as  twenty-four  per  cent  being  common.  This  situation  could  not 
give  satisfaction  either  to  the  bankers  or  to  the  public.  As  a  result, 
the  public  did  not  make  any  great  amount  of  deposits  and  the  private 
bankers,  in  satisfying  the  demands  of  borrowers,  either  were  forced 
to  violate  the  law  by  issuing  their  own  paper  or  to  lend  the  notes  of 
other  banks.  The  public  consequently  was  subjected  to  great  risk 
in  handling  bills  of  so  many  kinds.  In  fact,  "bank  note  reporters," 
"counterfeit  detectors,"  and  other  similar  publications  were  issued  at 
frequent  intervals,  but  even  while  they  were  being  printed  values 
changed  so  that  it  was  never  possible  for  any  holder  of  notes  to  know 
his  exact  worth  at  any  moment. 


V.  .11,'..  '* 


TRADERS  OX  SOUTH  WATER  STREET  A  CENTURY  AGO 


CHAPTER  V 
ILLEGAL  BANKING 

Currency  issued  by  the  Chicago  Marine  and  Fire  Insurance  Company — George  Smith — 
Illegal  currency  vs.  "wildcat"  notes — Interest  rates. 

In  the  midst  of  the  banking  agitation,  the  discovery  was  made 
that  there  was  no  constitutional  provision  against  insurance  com- 
panies. These,  it  was  now  reasoned,  might  make  loans  and  so  add 
to  the  sorely  needed  facilities  for  carrying  on  trade.  Insurance  com- 
panies also  could  lend  money  on  notes  which  might  assume  a  form 
that  could  pass  as  a  circulating  medium.  In  1836  and  1837  the  legis- 
lature had  chartered  the  Chicago  Marine  and  Fire  Insurance  Com- 
pany. The  charter  specifically  stated  that  the  company  was  not  to  do 
a  banking  business  or  issue  any  notes  or  bills  to  be  passed  as  money 
or  "in  the  semblance  of  bank  notes."  However,  as  early  as  May, 
1837,  the  company  published  an  advertisement  in  a  Chicago  news- 
paper saying  that,  in  consideration  of  the  great  need  of  the  com- 
munity, advantage  would  be  taken  of  a  section  which  read  "and  also 
receive  moneys  on  deposit,  and  to  loan  the  same,  on  bottomry,  -and 
respondentia,  or  otherwise,  at  such  rates  of  interest  as  may  now  be 
done  by  the  existing  laws  of  the  State."  Thereupon  the  company 
immediately  started  a  banking  business,  received  deposits,  loaned 
money,  bought  and  sold  exchange  and  coin,  and  in  the  course  of  time 
its  demand  certificates  of  deposit  took  the  place  of  money.  In  com- 
pliance with  its  charter,  the  company  did  not  issue  these  certificates 
"in  the  semblance  of  bank  notes"  and  it  was  impossible  to  prove  them 
in  any  way  a  violation  of  the  charter.  Not  based  on  any  authority 
of  the  law,  this  circulation  was  obliged  to  depend  upon  the  confidence 
of  the  people.  It  is  even  possible  that  the  directors  had  no  intention 
of  creating  a  circulating  medium  in  these  certificates,  but  did  so  only 
to  the  extent  of  demonstrating  the  feasibility  of  such  a  plan  in  times 
of  great  need  and  with  the  hope  that  a  class  of  men  who  could  put 
such  a  plan   into  practice  successfully  would  take  the  hint.      Nor 

108 


(Courtesy  Marine  National  Hank,  Milwaukee) 

ALEXANDER  MITCHELL 


(From  Andreas'  History  of  Chicago) 

GEORGE  SMITH 


HISTORY  OF  BANKING  IN  ILLINOIS  111 

was  it  long  before  that  very  thing  occurred,  and  this  form  of  paper 
became  a  leading  monetary  system  and  an  important  factor  in  the 
commerce  of  the  northwest. 

Among  the  shrewdest  financiers  in  Chicago  at  the  time  were 
George  Smith  and  Messrs.  Straehan  and  Scott.  Smith,  a  Scotch 
farmer,  had  come  as  a  prospector  in  1834,  but  becoming  impressed 
with  the  immense  fields  the  country  offered  for  profitable  invest- 
ment, he  returned  to  Scotland,  where  he  organized  the  Scottish  Illinois 
Land  Investment  Company.  Late  in  1836  Straehan  and  Scott  re- 
turned with  him  as  managers  of  the  affairs  of  the  company  and  acted 
both  as  agents  for  the  Scotch  company  and  as  private  bankers.  These 
men,  together  with  Smith,  who  was  an  advisory  director  of  the 
company,  eagerly  Watched  the  new  phase  of  banking  developments. 
By  1839  they  had  become  so  interested  that  they  took  a  transcript 
of  the  charter  of  the  Chicago  Marine  and  Fire  Insurance  Company 
and,  without  many  changes,  obtained  its  passage  from  the  Terri- 
torial Legislature  of  Wisconsin  under  the  title  of  the  Wisconsin 
Marine  and  Fire  Insurance  Company.  Alexander  Mitchell,  a  young 
banker  from  Aberdeen,  Scotland,  now  had  come  to  join  them  and 
he  was  made  secretary  and  local  manager  of  the  new  company  with 
an  office  at  Milwaukee.  The  company's  stock  amounted  to  $225,000, 
half  of  which  was  held  in  Scotland  and  the  other  half  by  the  four 
men  here.  Immediately  the  Milwaukee  office  established  a  business 
similar  to  the  one  in  Chicago  with  the  exception  that  the  certificates 
of  deposit,  which  were  in  denominations  of  one  dollar  to  ten,  were 
engraved  very  much  in  the  semblance  of  bank  bills.  These  were 
readily  redeemed  in  Chicago  at  the  banking  house  of  Straehan  and 
Scott  until  184-0,  when  that  firm  moved  to  New  York,  and  thereafter 
by  George  Smith  himself. 

The  new  issue  worked  its  way  into  circulation  slowly  at  first  and 
with  much  opposition  from  the  banks  which  were  still  doing  business 
under  state  charters,  but  before  long  the  new  notes  came  to  be  known 
as  reliable,  as,  in  contrast  to  other  bills,  they  were  always  paid 
promptly  upon  demand.  Soon  Illinois  and  other  bank  bills  were 
being  exchanged  at  less  than  their  face  value  and  the  "illegal"  cur- 
rency of  the  Wisconsin  Marine  and  Fire  Insurance  Company  was 
required  in  larger  and  larger  amounts.  By  December  1,  1841,  the 
company  had  outstanding  $34,028  of  these  bills,  after  which  time 
the  issue  increased  rapidly.  In  1843  it  amounted  to  $100,000,  in  1845 
had  reached  $250,000,  by  July  of  1847  $300,000  were  in  circulation, 


112  FINANCING  AN  EMPIRE 

and  in  November  of  the  same  year  there  were  $400,000  outstanding. 
The  year  1848  saw  $600,000  in  circulation,  in  1849  there  were  over 
a  million,  and  by  the  end  of  1851  the  peak  of  $1,470,000  was  reached. 
After  that  the  circulation  was  gradually  contracted,  every  dollar  of 
the  entire  outstanding  amount  was  paid,  except  $34,000  which  were 
never  presented — these  latter  notes  having  no  doubt  been  lost,  burned, 
or  worn  out.  Legal  banks  and  others  who  were  interested  in  stop- 
ping the  progress  the  institution  was  making,  exerted  great  efforts 
to  discredit  its  paper.  Runs  were  instituted  on  the  agencies,  and 
banks  would  hoard  large  quantities  of  the  illegal  notes  so  that  they 
might  be  presented  all  at  one  time  and  thus  drain  the  specie  supplies 
of  the  company.  Nothing,  however,  seemed  to  avail.  According  to 
one  story,  Mr.  Scammon,  President  of  the  Marine  Bank  of  Chicago, 
had  been  enjoying  the  pastime  of  presenting  large  amounts  of 
"Smith's  bills"  for  redemption.  One  day  he  met  Mr.  Smith  who 
asked  him  what  amount  of  the  notes  of  his  (Scammon's)  bank  were 
outstanding.  When  Mr.  Scammon  replied  that  there  were  just 
$175,000  Mr.  Smith  quickly  informed  him  that  his  own  vaults  con- 
tained $125,000  of  that  amount,  and  that  he  would  "bring  them  over 
for  redemption  one  of  these  days."  That  remark  kept  Mr.  Scammon 
in  a  state  of  worry  for  some  time  before  an  agreement  was  reached 
between  the  two  rivals  whereby  each  was  pledged  not  to  attempt 
anything  to  the  detriment  of  the  business  of  the  other. 

Since  "Smith's  bills"  could  not  be  driven  out  and  gained  such 
popularity  that  soon  agencies  for  their  redemption  were  established 
at  Galena,  St.  Louis,  Cincinnati,  and  Detroit,  some  bankers  decided 
to  take  advantage  of  doing  the  same  kind  of  business  in  addition  to 
their  legal  money  issues.  Also  it  soon  led  to  the  organization  of 
many  unincorporated  companies  which  circulated  funds  that  passed 
at  variable  discounts.  Among  the  legally  established  banks,  the 
Merchants'  and  Mechanics'  Bank  of  Chicago  did  a  thriving  illegal 
business  and,  as  a  result,  received  a  great  deal  of  complaint  from 
competitors.  The  bank's  illegal  currency  was  printed  to  look  as 
much  as  possible  like  the  legal  variety  and,  unless  one  were  very 
discerning,  he  would  never  know  whether  he  was  receiving  secured  or 
unsecured  paper.  Those  opposed  to  illegal  banking  now  demanded 
that  the  paper  of  banking  houses  doing  both  kinds  of  business  be 
refused,  and  soon  the  feeling  became  very  hot  among  those  opposed 
to  illegal  banking.     The  public,  however,  continued  to  accept  illegal 


HISTORY  OP  BANKING  IN  ILLINOIS  .  113 

# 

paper,  which  was  so  safeguarded  as  to  hold  its  value  in  preference 
to  the  legal  variety  which  had  given  much  reason  for  distrust. 

Up  to  this  time  the  current  interest  rate  had  been  ten  per  cent 
while  the  legal  banks  had  been  restricted  by  the  legislature  to  a  rate 
of  but  seven  per  cent.  Consequently,  to  do  business  at  all,  it  was 
necessary  that  the  banks  evade  the  law  and,  through  some  roundabout 
means,  secure  the  current  rate.  By  1849  money  had  become  very 
scarce  and  the  legal  interest  rate  was  advanced  to  ten  per  cent.  This, 
however,  was  not  now  a  real  remedy,  as  the  money  scarcity  had 
become  so  great  that  the  money  lenders  could  get  as  much  as  twenty- 
five  per  cent.  Little  specie  was  to  be  had  and  only  the  bills  of  foreign 
banks  could  be  secured  in  any  usable  quantity.  This  paper  was 
uncertain  in  its  value  and  business  consequently  suffered  from  its  use. 
By  September  of  that  year  money  tables  were  quoting  something 
as  follows: 

"Bills  bankable  and  commanding  specie  at  one  per  cent :  New 
England  banks  in  good  credit,  New  York  State  banks  in  good  credit, 
New  Jersey  and  Maryland  banks  in  good  credit,  Ohio,  Indiana  and 
Kentucky  banks  in  good  credit,  Michigan,  Virginia  and  Missouri 
banks  in  good  credit,  Wisconsin  Marine  and  Fire  Insurance  Company 
certificates,  Pennsylvania  banks,  not  over  one  per  cent  discount  in 
New  York. 

"Uncurrent:  Canada,  three  per  cent  discount,  Pennsylvania  par 
to  three  per  cent  discount,  Tennessee  not  taken,  State  Bank  of  Illi- 
nois, fifty  per  cent  discount,  State  Bank  of  Shawneetown,  seventy-five 
per  cent  discount."     (Andreas,  History  of  Chicago,  vol.  1,  p.  535.) 

On  November  15,  1851,  the  "Gem  of  the  Prairie"  published  this 
list  of  banks  which  were  then  supplying  local  currency  in  Chicago: 
Wisconsin  Marine  and  Fire  Insurance  Company;  The  Chicago  Bank 
of  I.  H.  Burch  and  Company;  the  City  Bank  of  Bradley  &  Curtiss; 
the  Southwestern  Plank  Road  Company;  and  the  Illinois  River  Bank. 
The  needs  of  the  times  were  such  that  all  of  these  passed  readily 
among  the  people  of  Illinois. 

George  Smith,  operating  under  the  title  of  George  Smith  and 
Company,  continued  in  business  on  La  Salle  Street  until  1857  when 
the  house  was  closed.  Shortly  thereafter  he  retired,  having  acquired 
large  sections  of  valuable  property  in  Chicago  and  elsewhere  and 
securities  in  such'quantities  that  the  son  of  another  of  Chicago's  promi- 
nent early  bankers,  recalls  a  visit  to  a  large  financial  house  in  New 
York  with  his  father  and  seeing  there  rooms  full  of  packing  cases 


114  FINANCING  AN  EMPIRE 

ready  for  shipment.  There  were  so  many  of  these  about  that  it 
looked  as  though  the  institution  were  about  to  be  moved.  Every 
case  was  filled  with  securities,  all  belonging  to  George  Smith  of  Chi- 
cago and  this,  it  was  said,  represented  but  a  fraction  of  his  enormous 
fortune.  As  this  incident  occurred  in  the  sixties,  it  is  probable  that 
Mr.  Smith  was  then  having  his  wealth  shipped  to  Scotland  where  he 
went  to  spend  most  of  his  remaining  days. 


CHAPTER  VI 
FREE  BANKING  SYSTEM 

Attempts  to  exclude  all  banks  from  Illinois — Establishment  of  the  Free  Banking  system 
— Bank  war — Agitation  against  illegal  currency — Legalizing  of  Smith's  bank— 
Banks  organized  up  to  1854  and  type  of  business  transacted — Illegal  loans  of  legal 
banks — Panic  of  1854 — Amendments  to  bank  law  of  1855 — Railroad  investments — 
Missouri's  internal  improvement  mania  and  its  effect  on  banks  of  Illinois — Panic  of 
1857 — St.  Louis  bankers  assist  Illinois — Amendments  of  1857 — Business  failures  of 
1858 — Closing  affairs  of  the  old  state  bank  of  Illinois,  1862. 

By  1846  Illinois  had  so  outgrown  the  provisions  of  her  1818  state 
constitution  that  the  legislature  passed  a  proposition  to  hold  a  con- 
stitutional convention.  Although  this  was  in  the  hands  of  the  Demo- 
crats who  were  opposed  to  all  banks,  a  pro-bank  Democrat  was  made 
president  and  every  attempt  to  force  the  adoption  of  a  constitutional 
prohibition  of  banks  was  defeated.  In  1847  the  vote  was  so  close 
that  the  exclusion  provision  was  lost  by  just  one  vote.  Finally,  the 
document  went  through  with  the  provision  that  the  state  itself  be 
prohibited  from  going  into  the  banking  business  or  from  holding 
any  stock  in  any  banking  corporation.  It  was  further  provided  that 
shareholders  be  made  individually  liable  for  the  amount  of  their 
stock  on  circulating  notes,  and  that  all  banking  acts  be  submitted  to 
the  people  for  vote.  In  1846  Governor  A.  C.  French  declared  against 
"incorporated  banking"  and  in  1848  an  attempt  made  to  extend  the 
charter  of  the  state  bank  for  two  years  failed. 

In  spite  of  the  efforts  exerted  to  make  the  new  constitution  bank 
proof,  it  had  no  more  than  been  accepted  when  the  Chicago  Board  of 
Trade  framed  a  bill  for  the  authorization  of  a  general  banking  law, 
and  business  interests  in  other  cities  set  up  agitations  with  similar 
aims  in  view.  Thus,  a  clause  which  had  been  intended  to  guarantee 
against  special  legislation  in  favor  of  business  or  other  interests,  was 
soon  being  used  directly  by  those  interests.  The  outcry  for  banks  so 
aroused  the  Democrats  that  in  1848  they  put  a  plank  in  their  party 
platform  declaring  "hostility  to  a  United  States  bank,  and  all  kindred 

115 


116  FINANCING  AX  EMPIRE 

institutions,  whether  of  a  state  or  national  character,  authorized  by 
either  general  or  special  laws."  The  next  year  Governor  French 
again  declared  himself  to  be  against  all  banks  and  as  a  result  they 
were  held  off  for  a  time,  but  not  without  a  lively  war  of  words  be- 
tween the  banking  and  anti-banking  factions,  each  of  which  blamed 
every  economic  ill  to  the  other.  The  business  men  of  the  state  set 
up  a  determined  fight  to  secure  action  from  the  legislature  of  1849 
establishing  banking  systems,  and  they  met  with  success.  The  new 
act  was  patterned  after  the  banking  system  of  New  York,  which 
provided  that  any  person  desiring  to  engage  in  the  issue  of  notes  be 
required  to  deposit  Math  the  state  auditor  bonds  issued  by  the  United 
States,  the  state  of  Illinois,  or  any  state  which  paid  full  six  per  cent 
interest.  The  deposit  of  the  first  two  classes  of  bonds  entitled  the 
owner  to  circulate  notes  to  the  full  market  value  of  the  bonds,  but 
not  more  than  half  their  par  value.  The  Illinois  bonds  as  security, 
however,  were  to  be  listed  at  twenty  per  cent  less  than  their  average 
value  in  the  New  York  market  during  the  preceding  six  weeks.  If 
any  state  failed  to  pay  regularly  at  a  rate  of  six  per  cent  on  its  bonds, 
the  state  auditor  must  demand  at  least  two  dollars  of  such  bonds  for 
each  one  dollar  of  notes  issued.  These  notes  were  to  be  printed  by 
the  state  auditor,  who  was  to  exchange  them  for  the  bonds  offered 
as  security  in  proper  legal  amount.  The  banking  institution  might 
be  formed  by  any  number  of  persons,  but  a  minimum  of  fifty  thousand 
dollars'  worth  of  capital  stock  must  be  sold  before  beginning  busi- 
ness. Such  banks  might  do  a  general  banking  business  and  circulate 
their  bond-secured  notes  as  money.  (Laws  of  Illinois,  1851,  p.  63, 
Sees.  4  and  9.)  If  any  banking  institution  failed  to  redeem  its  notes 
on  demand,  the  auditor  was  empowered,  after  giving  proper  news- 
paper notice,  to  sell  enough  of  the  deposited  bonds  to  enable  him1  to ' 
redeem  the  notes.  The  state,  however,  was  never  to  be  held  liable 
for  the  redemption  of  any  bank  paper.  Under  the  law,  any  note- 
holder might  put  a  bank  into  liquidation  because  of  failure  to  redeem 
its  paper,  by  the  simple  process  of  having  the  note  "protested"  by  a 
notary  public  and  the  protest  sent  to  the  state  auditor  who  would 
notify  the  officers  of  the  bank  to  pay  the  obligation  at  once.  If  not 
so  paid,  a  notice  would  be  put  in  the  paper  at  Springfield  and  one 
in  the  place  where  the  bank  was  located  to  the  effect  that  the  auditor 
would  redeem  and  retire  all  notes  of  the  bank.  Upon  publication  of 
this  notice,  the  bank  must  discontinue  all  business  except  the  settling 
of  its  affairs  under  a  receiver  appointed  by  the  courts.     The  assets 


GOVERNOR  AUGUSTUS  C.  FRENCH 
1846-1853 


HISTORY  OF  BANKING  TN  ILLINOIS    .  119 

would  then  be  applied,  first  to  the  redemption  of  notes,  next  to  the 
payment  of  liabilities  other  than  eapital  stock  and,  lastly,  anything 
left  would  go  to  the  shareholders.  If  there  were  not  enough  for  the 
first  item,  the  shareholders  were  to  be  held  individually  liable  up  to 
the  amount  of  their  stock  holdings.  (Laws  of  Illinois,  1851,  p.  163ff, 
Sec.  28.)  Any  note  not  paid  was  to  draw  interest  at  twelve  and 
one-half  per  cent  until  paid.  Also,  provision  was  made  that  any 
group  of  shareholders  owning  an  aggregate  of  three  thousand  dollars 
of  stock,  or  the  state  auditor,  might  demand  an  investigation  which 
must  be  conducted  by  the 'circuit  judge  of  the  county  in  which  the 
bank  was  located.  The  judge  must  then  publish  his  findings  and 
opinion  as  to  the  wisdom  and  honesty  of  the  bank's  management. 

This  new  banking  system  was  put  in  the  care  of  three  commis- 
sioners who  were  expected  to  examine  each  bank  at  least  once  a  year. 
If  there  was  a  shrinkage  in  the  value  of  securities  on  deposit  against 
note  issues,  the  bank  must  deposit  additional  bonds  or  withdraw  part 
of  its  notes  from  circulation.  Also  a  quarterly  statement  of  the 
bank's  condition  must  be  issued  and  published  in  a  local  newspaper. 
(Laws  of  Illinois,   1851,   p.    163ff,   Sec.  34.) 

When  the  general  banking  bill  was  sent  to  Governor  French,  a 
Democrat,  he  promptly  vetoed  it  and  offered  these  objections:  (1) 
The  bill  should  have  provided  for  a  definite  minimum  of  gold  and 
silver  to  be  kept  on  hand  for  the  redemption  of  notes.  (2)  Instead 
of  a  double-  stock  liability,  all  stockholders  should  have  been  held 
responsible  up  to  the  full  amount  of  their  private  property.  (3) 
Since  a  bond  itself  is  but  an  evidence  of  debt,  it  could  not  form  a 
proper  basis  for  further  evidences  of  indebtedness  and,  if  such  bonds 
were  worth  their  face  value  in  gold,  why  not  have  the  banks  deposit 
the  gold  instead  of  resorting  to  a  round-about  method  which  they 
claimed  to  amount  to  the  same  thing?  If,  on  the  other  hand,  the 
bonds  were  not  as  good  as  gold,  they  were  not  adequate  security  for 
the  notes.  (4)  Why  could  not  a  bank  incorporating  under  this  bill, 
instead  of  issuing  notes  properly  secured,  act  as  the  agent  for  a 
foreign  "wild  cat"  bank?  (5)  The  New  York  system  ori  which  this 
was  founded  had  not  yet  weathered  a  crisis  and,  therefore,  probably 
could  not  be  counted  a  success.  (Reports  of  Session,  H.  of  R.,  1851, 
p.  493.) 

In  spite  of  this  protest,  the  influence  of  the  business  men  prevailed 
and  the  bill  was  passed  over  the  governor's  veto  in  February,  1851. 
Not  without  some  resort  to  strategy,  however,  could  it  be  submitted 


120  FINANCING  AN  EMPIRE  | 

to  the  people,  even  under  most  favorable  circumstances.  The  general 
election,  it  seems,  was  not  due  for  some  time;  therefore,  to  secure  the 
passage  of  the  bill  at  an  early  date,  the  Assembly  resorted  to  the 
device  of  legislating  out  of  office  all  of  the  county  treasurers  and  then 
ordered  a  new  general  election  for  them.  After  an  energetic  canvass 
throughout  the  state  by  both  friends  and  enemies,  the  bill  was  adopted 
at  the  special  election  by  a  vote  which  stood  37,626  for  and  31,405 
against.  When  first  passed,  this  new,  so-called  "free"  banking  law 
of  1851,  could  be  and  was  so  construed  that  two  kinds  of  banks  were 
established,  each  under  the  supervision  of  the  state  auditor,  but  one 
issuing  notes  secured  by  deposited  bonds  and  the  other  simply  issuing 
unsecured  notes.  During  the  summer  of  1852  only  two  banks  issu- 
ing secured  paper  were  organized  and,  as  a  result,  so  much  criticism 
was  brought  to  bear  from  the  anti-bank  faction  that  the  Senate  de- 
termined to  act  to  repeal  the  law.  Immediately  there  was  a  great 
rush  of  applications  for  charters  from  banks  which  wished  to  secure 
circulation  privileges  for  possible  future  use  before  the  repeal  could 
go  through  and,  within  a  few  days  after  the  news  was  spread  abroad, 
as  many  as  twenty-seven  applications  were  made.  Later,  when  the 
law  was  not  repealed,  the  number  of  banks  again  fell  off,  until  in 
1854  the  banking  commissioners  reported  that  there  were  only  twenty- 
nine  banks  operating  under  the  law,  ten  in  Chicago,  two  each  in 
Springfield  and  Naperville,  and  not  more  than  one  in  any  other  city. 
The  issues  of  these  banks  constituted  but  a  small  amount  of  the 
circulation,  while  illegal  issues  and  those  of  foreign  banks  continued 
to   flourish. 

To  us  of  this  day  and  age  it  is  a  matter  of  peculiar  interest  to 
note  that  apparently  it  did  not  occur  to  the  bankers  of  that  time  that 
a  situation  might  ever  arise  in  which  it  would  become  possible  for 
the  securities  backing  the  circulation  themselves  to  depreciate  enough 
in  value  to  bring  the  currency  into  distrust.  Nor  was  this  the  only 
flaw  of  a  fundamental  nature  in  the  law.  Banks  could  issue  all  the 
currency  they  wished — legally — provided  only  that  they  kept  suffi- 
cient security  with  the  state  auditor.  Even  the  place  of  issue  could 
be  located  in  an  inaccessible  spot  and  notes  circulated  at  great  dis- 
tances therefrom  so  as  to  be  not  easily  redeemable.  Further,  there 
was  no  provision  for  the  actual  payment  of  even  a  dollar  of  the  fifty 
thousand  dollars'  worth  of  capital  stock  prescribed  as  a  minimum. 
Even  the  bonds  securing  circulation  could  be  obtained  with  borrowed 
money  and  paid  for  with  the  notes  issued  against  them.     Notwith- 


Hp%  ' 

« 

JLS. 

Bk^  : 

J.  YOUNG  SCAMMON 
President  Marine  Bank 


CHICAGO  MARINE  BANK 
Corner  La  Salle  and  Lake  Streets. 


HISTORY  OF  BANKING  IN  ILLINOIS  123 

standing  all  these  weak  points — of  which  ample  advantage  was  taken 
— the  system  was  decidedly  better  than .  any  that  had  preceded  and 
was  so  well  guarded  that  it  furnished  a  fairly  safe  circulating  medium 
up  to  the  time  of  the  Civil  war. 

For  a  period  a  bank  war  waged,  but  little  could  come  of  all  the 
agitation  because  of  the  intricate  situation  which  existed.  Legally 
established  banks  were  issuing  illegal  bills;  some  few  banks  did  a 
strictly  legal  business,  even*  going  so  far  as  to  absorb  illegal  banks 
and  substitute  legal  for  the  illegal  currency  outstanding.  The  Chi- 
cago Marine  Bank,  which  had  organized  under  the  law,  was  accused 
of  having  revived  its  old  insurance  company  and  of  making  legal 
loans  thereto,  so  that  the  latter,  in  turn,  might  circulate  illegal  bills 
for  profit.  Some  banks  were  so  bold  as  to  issue  illegal  currency  for 
buying  bonds  that  might  be  deposited  with  the  auditor  against  legal 
issues.  As  a  consequence,  the  bankers,  under  J.  Y.  Scammon  of  the 
Marine  Bank  of  Chicago,  determined  to  put  an  end  both  to  the  actual 
illegal  practices  and  to  unjust  accusations  of  such  dishonesty  by  get- 
ting the  legislature  to  pass  an  amendment  to  the  bank  law  which 
would  prohibit  all  illegal  banking.  On  February  10,  1853,  this  was 
passed  and  to  conduct  a  banking  business  within  the  state  except 
under  the  provisions  of  the  statutes  was  made  little  less  than  a 
felony.  ( 

In  prohibiting  illegal  currency,  more  than  the  powers  of  the  law 
were  required  to  accomplish  the  desired  result.  Hard  as  legal  bankers 
might  try  to  eliminate  this  competition,  they  always  had  to  contend 
with  a  public  which  had  learned  that  the  illegal  currency  of  such  in- 
stitutions as  the  Wisconsin  Marine  and  Fire  Insurance  Company, 
under  the  leadership  of  George  Smith,  was  more  acceptable  than  the 
legal  issues.  There  was  the  added  difficulty  that  the  law  required 
notes  to  be  redeemed  at  par,  while  illegal  notes,  such  as  Smith's,  were 
redeemed  for  gold  only  at  a  premium  of  one  per  cent.  Consequently, 
Smith's  paper  circulated  while  the  notes  of  the  legal  banks  were  pre- 
sented for  redemption.  Also,  men  like  Smith  had  bought  interests 
in  foreign  banks  and  were  circulating  their  issues  in  Illinois,  and  other 
foreign  bankers  established  agencies  in  the  state  for  the  purpose  of 
circulating  and  redeeming  their  notes.  Nebraska  had  established 
such  agencies  at  Galesburg,  Peoria,  Macomb,  and  other  cities. 
Georgia  was  represented  largely  through  Smith's  investments  there. 
Some  states — often  those  offering  the  less  reliable  currency — would 
persuade  residents  of  Illinois  to  take  stock  in  their  banks  and  so 


124  FINANCING  AN  EMPIRE 

attain  a  right  to  the  bank's  notes;  such  stockholders  would  then  agree 
to  help  keep  each  other's  notes  in  circulation,  and  so  "wild  cat"  issues 
both  good  and  bad  flourished. 

A  cry  arose  against  the  one  per  cent  charge  for  redemption  which 
illegal  bankers  were  making  and  which  was  driving  legal  notes  out 
of  circulation.  George  Smith  was  the  most  important  factor  in  this 
problem  as  his  notes  had  the  greatest  confidence.  He  readily  agreed 
to  redeem  at  par  if  all  others  would,  but  upon  their  refusal  the  plan 
fell   through. 

After  the  amendment  of  1853  Smith  legalized  his  bank  and  sup- 
plemented his  issuing  powers  by  buying  banks  in  other  states  whose 
currency  could  not  be  kept  out  of  Illinois.  He  circulated  large  quan- 
tities of  bills  from  Georgia  and  Tennessee  which  could  not  be  dis- 
credited because  of  Smith's  ownership  in  them  and  his  power  over 
the  banking  situation  in  Illinois.  Other  bankers  followed  his  lead, 
and  so  the  amendment  prohibiting  illegal  banking  only  made  worse 
the  situation  as  regards  foreign  issues.  When  the  bankers  of  Illinois 
tried  to  discourage  foreign  circulation  by  refusing  to  collect  such 
notes  except  the  holder  submit  to  a  high  service  charge,  people  merely 
used  the  notes  as  they  were  and  seldom  bothered  trying  to  have  them 
exchanged  for  specie. 

Thirty-one  banks  had  been  organized  by  1854  with  a  capital  of 
seventeen  million  dollars  and  securities  in  the  hands  of  the  state 
auditor  valued  at  $2,650,987.62.  Of  this,  $1,844,500  were  bonds  of 
Virginia,  Georgia,  Missouri,  Ohio,  Wisconsin,  Kentucky,  and  Ten- 
nessee, all  of  which  states  were  paying  six  per  cent  regularly  and 
notes  were  being  issued  against  them  to  their  full  par  value. 

This  circulation  privilege  was,  in  the  main,  the  only  business  of 
these  banks.  In  1854  when,  instead  of  regular  tax  assessments,  the 
banks  were  taxed  on  loans,  discounts,  and  bond  deposits,  it  was  found 
that  but  nine  banks  made  any  return  on  loans  and  discounts  and  all 
others  reported  only  the  minimum  of  fifty  thousand  dollars  in  bonds 
required  for  incorporation.  Investigation  showed  that  these  banks 
actually  were  not  doing  a  loan  and  discount  business  at  all;  they 
simply  secured  the  right  to  issue  notes  and  then  loaned  them  all  to 
private  brokers,  so  that  the  low  legal  interest  rate  might  be  exceeded 
and  the  tax  on  loans  and  discounts  evaded.  In  this  way  it  was  pos- 
sible for  the  banks  to  set  up  an  endless  chain  by  first  securing  bonds, 
then  notes,  putting  them  out,  and  with  the  funds  so  secured  to  buy 
more  bonds,  and  so  on.     The  fact,  however,  that  only  a  few  of  the 


1  <•# 


1 


/ffl/Hn/i 


(Courtesy  Waldo  C.  Moore) 


Cf^-c.-lj 


1934         ,*&* 


MARINE  BANK':CE  ICAGCJ 


j >l&  *••  ■ 


(Courtesy  D.  C.  Wismer) 


^ 


Fund  Commi  s  s>pn^r  of  the  Stateof  Illinois. 

Mm 


100 


^'  -    - 


' 


(Courtesy  D.  C.  Wismer) 


o 


.-- >   • 


najuto©  ihkjkj^  as£  rJ  rJj>vrj  o^j 


'"1(1.  jo»- 


^///  -////// 


(Courtesy  D.  C.  Wismer) 


1  iiuTWKji  lH8KJVjtnen.it. 
£)fciib  ui 


ONE. 


-HHIWW 


(  OSWE  GO  &  INDIANA  ) 

^i.     ^a-t.r.r  «nAi>  drrjtn\.ir 

„///,//>a>/m/*//„    ONEDiOlLLAR  *^/X ,///./„„. 


(Courtesy  Waldo  C.  Moore) 


HISTORY  OF  BANKING  IN  ILLINOIS  127 

banks  had  deposited  more  than  fifty  thousand  dollars  minimum  re- 
quired in  bonds  showed  that  in  all  probability  they  were  not  taking 
advantage  of  this  particular  flaw  in  the  law. 

During  the  summer  of  18.54  the  new  banks  got  their  first  shock 
in  the  form  of  a  panic  which  was  reported  the  worst  since  the  great 
panic  of  1837-  Extensive  railroad  construction  projects  in  the 
middle  west  had  put  a  heavy  drain  on  the  money  market.  Soon  the 
bond  market  declined  and  a  spirit  of  distrust  seized  the  holders  of 
bond-secured  bank  notes.  The  trouble  came  on  suddenly  so  that 
the  banks  were  unprepared  to  meet  the  demands  for  note  redemp- 
tion. The  bank  commissioners  tried  to  help  the  situation  by  assur- 
ing note  holders  that  their  paper  was  amply  secured  and  no  loss  need 
be  sustained,  but  in  spite  of  all  they  could  do  some  few  banks  were 
so  pressed  as  to  find  it  necessary  to  suspend  specie  payments,  and 
many  people  disposed  of  their  notes  at  a  large  discount,  which  proved 
unnecessary  as  the  banks  soon  made  a  fairly  good  recovery  from 
the  panic.  Only  three  closed  their  doors  permanently  and,  accord- 
ing to  the  auditor's  report,  at  the  end  of  November,  18.54,  there 
was  outstanding  a  total  of  $2,649,341  in  circulation  secured  by  bonds 
valued  at  $3,170,529.0.5. 

Following  the  panic,  the  banking  commissioners  urged  the  legis- 
lature to  eliminate  the  seven  per  cent  interest  requirement  of  the 
law  so  that  banks  might  carry  on  a  legitimate  business  more  regu- 
larly. Also  they  urged  that  the  banking  law  be  amended  to  require 
that  a  minimum  amount  of  specie  be  kept  on  hand  for  note  redemp- 
tion. In  18.55  the  legislature  did  make  some  improvements  in  the 
law,  but  entirely  ignored  these  two  suggestions  of  the  commissioners. 
Instead,  any  bank  about  to  wind  up  its  affairs  was  required  to  certify 
the  fact  to  the  state  auditor  so  that  proportionate  amounts  of  its 
bonds  might  be  received  from  him  in  return  for  notes  to  be  retired 
and  if  the  bank  were  to  retire  from  business  before  all  the  notes 
had  been  paid  off,  there  must  be  deposited  with  the  auditor  enough 
specie  to  cover  those  still  outstanding. 

Close  upon  the  heels  of  the  discovery  of  gold  in  California  in 
1848  there  came  a  great  business  boom  in  which  extensive  railroad 
developments  were  made  all  over  the  country;  these,  in  fact,  were 
largely  responsible  for  the  subsequent  demand  for  labor  and  mate- 
rials, and  consequent  business  prosperity.  The  average  yearly  gold 
production  had  now  become  fifteen  times  as  great  as  that  of  the 
preceding  three  centuries.     Prices,  naturally,  rose,  but  not  so  much 


128  FINANCING  AN  EMPIRE 

as  might  be  expected  because  a  large  part  of  the  new  gold  was  ex- 
ported to  countries  where  a  greater  purchasing  power  might  be 
secured.  In  1850,  at  the  beginning  of  the  boom,  there  were  some 
nine  thousand  miles  of  railroad  in  the  country;  by  18,57  the  mileage 
had  increased  to  24,500.  In  the  single  year  of  1856,  3,600  miles 
were  constructed.  (Scropgs:  A  Century  of  Banking  Progress, 
p.  147.)  Railway  securities  were  being  floated  in  amounts  as  large 
as  one  hundred  million  dollars  a  year.  Much  of  the  money  had  to 
come  from  abroad  as  America  did  not  yet  have  large  quantities  of 
funds  for  investment.  But,  even  with  this  inflow  of  foreign  capital, 
the  needs  of  the  time  were  not  met  and  domestic  banks  put  large 
sums  into  railroad  issues — a  non-liquid  type  of  investment  for  bank 
funds.  In  the  middle  west  where  railroad  development  was  espe- 
cially active,  it  was  estimated  that  banks  invested  as  much  as  half 
their  capital  in  such  securities.  Many  railroads  were  built  over 
territory  not  yet  settled  and  from  which  incomes  could  not  be  ex- 
pected for  some  years  to  come.  Individuals,  banks,  and  whole  towns 
incurred  heavily  bonded  debts  to  help  the  project.  The  banks,  with 
so  much  money  tied  up,  were  forced  to  expand  their  circulation. 
Heavy  imports  drained  the  country  of  specie  and  money  generally 
became  tight. 

About  this  time  the  state  of  Missouri  was  suffering  from  an 
internal  improvement  mania  similar  to  the  one  that  had  seized  Illi- 
nois twenty  years  before.  More  than  two-thirds  of  the  notes  of 
Illinois  banks  were  secured  by  Missouri  state  bonds.  The  public 
debt  of  Missouri  was  growing  at  a  rate  that  knew  no  bounds  and  its 
securities  declining  in  market  value.  The  Illinois  banks  had  now 
been  in  operation  for  six  years;  the  state  had  grown  and  its  wealth 
about  tripled;  money  was  plentiful  and  land  values  inflated;  but 
in  1857  the  reaction  set  in.  On  August  20  a  large  failure  occurred 
in  Boston,  followed  by  the  Ohio  Life  Insurance  &  Trust  Company 
of  Cincinnati  which  had  acted  as  a  means  of  transporting  funds  by 
draft  between  the  west  and  the  east,  and  thereupon  one  thing  after 
another  brought  on  a  state  of  panic.  Soon  the  situation  became 
acute  on  the  New  York  stock  market.  State  bonds  declined  rap- 
idly and  the  auditor  of  the  state  of  Illinois  had  to  call  on  almost 
every  bank  in  the  state  for  additional  securities  against  outstanding 
circulation.  He  faced  a  situation  where  it  was  becoming  necessary 
to  convert  some  of  the  collateral  into  gold  or  exchange  for  the  liquida- 
tion of  eastern  indebtedness  which  had  to  be  on  a  specie  basis,  and 


^ 


*  f^^JT  3&2I  2&  ^fe 


& 


km 


W*  fttwwy*' 


t'lLLPA" 


-«iT  W  E  N  T  Y-  F  I  V  E}    CENTS,> 


FOREIGN  Si  DOMI 

141  Lake  Street. 


53 


|p mi  .mi [»■..,.,  ,irt«imiiiti fin  ill mi  i n»  tmti^m^mtmm i m  mm ^| i  .■■  ii i ■ii.imiu-rriw*- 


ST  Joseph  Cecity  Baj^ 


HISTORY  OF  BANKING  IN  ILLINOIS-  131 

then  the  defects  of  the  banking  system  came  to  light.  It  was  not 
then  possible  to  make  the  exchanges,  and  banks,  as  a  rule,  were 
unable  to  keep  their  circulation  on  a  par -with  gold,  no  matter  how 
many  bonds  might  be  deposited  against  it.  In  the  final  test  the 
price  of  Illinois  currency  in  terms  of  eastern  exchange  proved  that 
it  no  longer  performed  the  'functions  of  money.  Exchange  rose  in 
price  until  a  premium  of  ten  or  even  fifteen  per  cent  was  reached. 
In  the  west,  however,  this  was  the  best  money  obtainable,  so  it  con- 
tinued to  circulate,  although  business  men  were  greatly  annoyed  by 
the  constant  fluctuations  in  exchange. 

The  Stock  Security  Bank  of  Danville  was  one  of  those  which 
went  into  liquidation.  The  securities  deposited  against  its.  circula- 
tion had  depreciated  so  rapidly  that  the  note  holders  received  but 
eighty-eight  and  one-quarter  cents  on  the  dollar.  This,  however, 
was  the  first  instance  in  the  history  of  the  banks  where  the  proceeds 
from  the  sale  of  bonds  on  deposit  were  not  adequate  to  reimburse 
note  holders. 

Constantly  the  securities  declined  in  market  value  and  the  com- 
missioners were  forced  to  ask  for  more  and  more.  Banks  reduced 
their  circulation.  Three  banks  failed.  Fortunately  there  were  no 
more  that  were  unable  to  meet  the  requirements  of  the  law  or  the 
state  auditor  would  have  been  confronted  with  the  necessity  of 
dumping  large  quantities  of  bonds  on  a  market  not  prepared  to  ab- 
sorb them.  Conditions  in  Missouri  grew  steadily  worse  and  that 
state  threatened  to  adjust  affairs  by  not  paying  the  interest  on 
its  outstanding  debt.  This  calamity  was  averted,  happily,  or  doom 
would  have  been  spelled  to  the  Illinois  banking  system. 

St.  Louis  banks,  which  had  been  watching  affairs  in  Illinois, 
now  became  alarmed  at  the  frequent  calls  for  more  security  against 
notes  being  made  by  the  commissioners  and  determined  to  refuse 
acceptance  of  any  Illinois  currency  offered  them.  A  disaster  was 
averted  by  the  three  commissioners  who  themselves  hastened  to  St. 
Louis,  explained  the  exact  situation,  and,  with  the  help  of  a  friendly 
newspaper  in  the  city,  recovered  a  much  needed  confidence  in  the 
financial  affairs  of  Illinois.  In  addition,  the  bankers  of  St.  Louis 
agreed  to  furnish  specie  for  Illinois  currency  at  the  rate  of  ninety 
to  ninety-five  cents  on  the  dollar.  This,  while  good  news  to  the 
banking  system  of  the  state,  was  still  better  for  those  speculators 
who  had  bought  up  Illinois  notes  at  very  low  prices  during  the  short 
period  when  they  were  discredited. 


132  FINANCING  AN  EMPIRE 

To  remedy  some  of  the  evils  which  the  panic  was  bringing  to 
light  in  the  banking  system,  the  legislature  of  18.57  passed  an  act 
requiring  that  every  incorporated  banking  house  must  do  business 
only  in  the  name  of  the  bank  and  at  the  place  named  on  its  notes 
and  in  the  certificate  of  organization.  The  object  was  to  forbid 
the  practice  of  locating  banks  in  inaccessible  spots  and  circulating 
notes  at  great  distances,  so  that  there  would  be  no  call  for  their 
redemption.  Also  provision  was  made  that  no  bank  could  be  estab- 
lished except  in  a  settlement  containing  at  least  two  hundred  people, 
which  did  away  with  institutions  such  as  the  Bank  of  Southern 
Illinois  located  at  Bolton,  a  town  of  only  one  family  in  an  out-of- 
the-way  part  of  Williamson  County.  This  bank  issued  notes  in 
busier  centers,  knowing  that  they  would  never  come  back  for  pay- 
ment. The  new  legislation  also  prohibited  other  ways  then  in  vogue 
of  discouraging  the  presentation  of  notes  for  payment.  Among 
these  methods  were  the  demands  of  some  banks  that  the  note  holder 
present  his  holdings  one  at  a  time  and  receive  currency  in  small 
denominations. 

The  amendment  of  18.37  provided  against  the  practice  of  bor- 
rowing securities  with  which  to  start  a  bank  and  then  paying  for 
them  with  notes  issued  against  them.  Likewise  the  legal  rate  of 
interest  was  changed,  in  accordance  with  the  recommendation  of 
previous  commissioners,  and  ten  per  cent  instead  of  seven  was  now 
made  a  legal  rate.  As  security  for  circulation  the  bonds  of  Illinois 
were  now  put  on  the  same  footing  with  those  of  other  states  regu- 
larly paying  six  per  cent — heretofore  these  had  been  discriminated 
against  in  the  amount  of  notes  that  might  be  issued  against  them. 
From  then  on  all  notes  might  be  issued  up  to  ninety  per  cent  of 
the  actual  market  value  of  any  securities  placed  on  deposit  with 
the  state  auditor  and  meeting  his  requirements. 

In  favor  of  the  settlement  of  affairs  of  defunct  banks,  it  was 
now  required  that  note  holders  and  creditors  of  an  insolvent  bank 
present  their  claims  within  three  years  or  the  bank  would  be  released 
from  obligation.     (Laws  of  Illinois,  1857,  p.  220.) 

By  the  opening  of  the  year  18.58  the  banks  of  Illinois  had  re- 
covered. Only  a  small  number  had  gone  into  liquidation,  but  busi- 
ness failures  throughout  the  state  had  been  numerous.  In  Chicago 
business  was  paralyzed  for  a  time  and  one  hundred  and  seventeen 
out  of  a  total  of  thirteen  hundred  and  fifty  concerns  failed.  In 
other  parts  of  the  state  conditions  were  not  quite  so  bad;  only  one 


(Courtesy   Central    Trust.   Company) 


CHICAGO  IX  1857 


Vol.  1—5 


HISTORY  OF  BANKING  IN  ILLINOIS      ■  135 

hundred  and  ninety-nine  firms  failed  out  of  a  total  of  eleven  thou- 
sand four  hundred  and  fifty-nine.  As  business  improved,  however, 
weather  conditions  were  such  that  the  fanners  of  the  state  obtained 
only  poor  crops  and  the  down-state  sections  suffered  more  in  18.58 
than  they  had  the  year  previous.  The  banks,  with  recent  improve- 
ments made  in  the  law,  were'  now  established  on  so  sound  a  basis 
that  they  weathered  the  storm,  and  after  two  years  of  hard  times 
only  six  out  of  fifty-four  had  passed  out  of  existence.  Of  the  six, 
all  but  the  Danville  bank  had  been  able  to  redeem  their  notes 
without  loss  to  the  holders.     (Reports  of  Session,  1859,  p.  193.) 

The  legislature  of  18.59  was  of  the  opinion  that  banks  which 
had  conducted  themselves  Avell  during  times  such  as  had  just  passed 
were  operating  under  measures  amply  adequate,  and  therefore  no 
further  banking  legislation  was  enacted.  In  spite  of  the  good  opin- 
ion the  state  of  Illinois  might  hold  of  her  own  banks,  however,  not 
the  same  was  true  of  the  Secretary  of  the  Treasury  of  the  United 
States  who,  in  his  report  on  the  state  of  finances  for  the  year  ended 
June  30,  1860,  showed  Illinois  to  be  at  the  bottom  of  the  list  of 
states  in  amount  of  specie  held  by  her  banks  in  proportion  to  out- 
standing circulation.  Illinois  had  only  four  and  one-quarter  per 
cent  of  specie  available  against  her  circulation  while  the  average  for 
the  remainder  of  the  country  was  twenty-three  and  eight  one-hun- 
dredths  per  cent.  In  making  comment  on  this  situation  the  Secre- 
tary stated  that  in  Illinois  debt  was  piled  upon  debt  in  an  astound- 
ing way:  even  the  circulation  Avas  based  on  funded  debt  and  all  that 
kept  the  notes  in  circulation  was  the  fact  that  the  people  of  the 
state  believed  in  the  ultimate  redemption  of  the  notes. 

In  1859  crops  were  good  and,  as  business  had  already  been  mak- 
ing strides  forward,  the  outlook  for  prosperity  was  bright.  Again 
in  1860  the  state  had  the  best  agricultural  crops  of  its  history.  Cur- 
rency was  expanded  and  new  banks  were  started,  but  no  sooner 
were  affairs  going  nicely  when  the  bonds  of  Missouri  took  another 
slump.  This  time,  all  Illinois  banks  affected  were  able  to  make 
the  necessary  adjustment  and  records  showed  that  of  the  one  hun- 
dred and  ten  banks  established  under  the  new  law,  only  fourteen 
had  gone  out  of  existence;  of  these  only  one  had  resulted  in  a  loss 
and  that  for  only  three  per  cent. 

Once  again  the  State  Bank  of  Illinois  must  enter  the  picture. 
In  1859 — sixteen  years  after  liquidation — the  bank's  liabilities  still 
amounted  to  $150,000  and  more  than  one   and  one-half  million  of 


136  FINANCING  AN  EMPIRE 

the  capital  stock  had  become  a  total  loss  to  the  investors.  The  assets 
now  amounted  to  fifteen  or  twenty  thousand  dollars  in  cash  and  some 
very  old  debts.  Three  trustees,  drawing  one  thousand  dollars  a 
year  each,  had  been  in  charge  of  winding  up  the  bank's  affairs  for 
the  past  eleven  years.  Two  of  them  by  now  had  lost  interest — ex- 
cept in  the  annual  income — and  had  agreed  to  let  the  third  do  all 
the  work,  while  each  gave  him  two  hundred  and  fifty  dollars  a  year. 
Furthermore,  in  all  this  time  only  one  dividend  had  been  declared 
to  the  note  holders  and  depositors  of  the  bank,  and  that  for  the 
small  sum  of  sixteen  and  two-thirds  per  cent. 

After  an  investigation  which  revealed  the  situation,  the  bank's 
real  estate  and  other  chattels  were  put  on  sale  in  November  of  1862 
at  auctions  held  at  Mineral  Point,  Wisconsin,  and  Springfield,  Illi- 
nois. 


CHAPTER  VII 
CHICAGO  BANKING 

Earliest  commercial  transactions  in  Chicago — Gurdon  S.  Hubbard — Chicago's  first 
branch  of  the  state  bank — Closing  of  the  state  bank  in  1843 — Early  private  bankers — 
First  banking  relations  with  the  Pacific  Coast — First  woman's  department  in 
Chicago — Seth  Paine  and  his  spiritualist  bank — 1851  found  Chicago  as  the  leading 
banking  center  of  the  middle  west — List  of  banks  organized. 

In  recording  the  history  of  the  banking  institutions  of  any  sec- 
tion of  the  country,  it  is  difficult  to  avoid  devoting  too  much  space 
to  calamities  that  have  occurred,  a  situation  to  be  expected,  for  so 
long  as  everything  connected  with  our  financial  institutions  is  run- 
ning smoothly  there  is,  seemingly,  nothing  to  record.  Only  the 
unpleasant  happening  enters  our  newspaper  and  magazine  records 
and  even  the  laws  on  our  statute  books  are  largely  the  result  of  things 
gone  wrong  and  so  they,  too,  reflect  calamity.  As  a  consequence, 
columns  are  written  describing  those  panics  which  occur  only  once 
each  twenty  years  and  little  space  is  given  to  the  long  periods  of 
peace  and  prosperity  intervening.  If  only  more  complete  records 
had  been  kept  doubtless  we  would  find  that  the  history  of  banking 
in  Illinois  represented  far  more  that  was  pleasant  and  human,  with 
here  and  there  a  touch  of  humor  or  even  the  ridiculous,  than  is  pos- 
sible to  realize  from  such  records  as  have  been  left  us.  Since  more 
of  the  human  side  of  banking  has  been  bequeathed  us  by  Chicagoans 
than  by  bankers  from  any  other  section  of  the  state,  perhaps  we 
can  read  into  the  progress  of  Chicago's  financial  institutions  during 
this  period,  something  of  what  was  also  taking  place  in  other  sec- 
tions. 

In  Chicago  as  elsewhere,  the  very  first  transactions  which  involved 
the  payment  of  money  were  made  with  Indian  traders,  who  on  the 
whole  seem  to  have  been  honest  and  always  to  have  lived  up  to  their 
financial  agreements.  These  Indians  apparently  had  already  ad- 
vanced somewhat  beyond  the  stage  of  pure  barter  and  possessed  a 
currency   which,   while   often-  unsatisfactory    in    form,   nevertheless 

137 


138  FINANCING  AN  EMPIRE 

proved  to  be  far  more  convenient  than  barter  alone.  Those  traders 
who  were  more  or  less  professional  in  their  financial  dealings  had 
some  form  of  agreement  which  corresponded  to  the  modern  promis- 
sory note  and  these  agreements,  in  whatever  form  given,  were  ac- 
cepted by  white  men  as  reliable. 

Probably  the  first  white  man  to  do  anything  resembling  a  bank- 
ing business  in  Chicago  was  Gordon  S.  Hubbard.  Mr.  Hubbard, 
while  he  did  not  actually  set  up  banking  rooms  in  Chicago,  was  a 
man  of  such  means  and  good  credit  as  to  be  able  to  draw  a  bill  of 
exchange  on  the  east  which  was  certain  to  be  honored  on  presenta- 
tion. On  many  occasions  he  permitted  his  fellow  townsmen  the 
use  of  this  credit  and  thereby  greatly  assisted  the  beginnings  of  trade 
between  Chicago  and  the  east.  Also,  because  of  his  financial  power 
in  the  west,  Mr.  Hubbard  was  often  entrusted  with  the  keeping  of 
various  sums  of  money  either  for  deposit  or  business  exchange,  so 
probably  he  performed  most  of  the  functions  of  a  banker  even  in 
those  early  days. 

Since  the  state  of  Illinois  was  first  settled  from  the  south,  many 
banks  appeared  there  before  one  was  established  in  Chicago.  Even 
the  first  state  bank  with  four  branches  did  not  consider  Chicago  a 
suitable  place  for  the  establishment  of  one  of  them. 

When  the  second  state  bank  was  established  by  the  legislature 
on  February  12,  183.5,  Chicago  felt  herself  entitled  to  one  of  the 
branches.  She  was  now  a  rapidly  growing  settlement  and  had  dis- 
covered the  possibilities  of  using  her  port  on  the  Great  Lakes  as  an 
economical  means  of  shipping  the  products  of  Illinois  to  the  east. 
Therefore  citizens  of  the  village  immediately  set  about  securing  one 
of  these  branches,  and  on  December  5,  1835,  their  efforts  were 
rewarded  with  success  when  there  was  established  "The  Chicago 
Branch  of  the  Illinois  State  Bank"  with  John  H.  Kinzie  as  presi- 
dent and  a  board  of  directors  consisting  of  G.  S.  Hubbard,  Peter 
Pruyne,  E.  K.  Hubbard,  R.  J.  Hamilton,  Walter  Kimball,  H.  B. 
Clarke,  G.  W.  Dole,  and  E.  D.  Taylor.  W.  H.  Brown  was  made 
cashier  of  the  new  bank  which  opened  for  business  about  the  mid- 
dle of  December  in  a  four-story  building  on  the  corner  of  La  Salle 
and  South  Water  streets.  According  to  an  advertisement  appearing 
in  the  American  of  February  13,  1836,  the  bank  was  kept  open  for 
business  from  nine  in  the  morning  until  one  o'clock  in  the  afternoon. 
All  paper  for  discount  was  to  be  offered  on  Mondays  or  Thursdays, 
as  Tuesdays  and  Fridays  were  the  official  "discount  days."     That 


JOHN  H.  KINZIE 

President  of  the  first  Chicago  branch  of  the  State  Bank  of  Illinois. 


HISTORY  OF  BANKING  IN  ILLINOIS  141 

Chicago  was  deserving  of  a  banking  institution  is  indicated  by  the 
fact  that  the  bank  did  a  flourishing  business  from  the  start  and  that 
a  single  customer — Garret,  Brown  &  Brother— deposited  a  total  of 
$34,359.31   between  December  30  and  February  27. 

Soon  Chicago  outgrew  the  facilities  of  her  one  state  bank  and, 
although  the  institution  remained  in  the  city  for  seven  years,  it  is 
said  that  its  cessation  of  business  in  1843  was  not  greatly  regretted 
by  the  city  for  its  inadequate  facilities  had  already  been  supplemented 
by  more  efficient  private  bankers.  The  first  of  these — the  Chicago 
Marine  &  Fire  Insurance  Company — had  received  a  charter  only 
one  year  after  the  state  bank  opened  for  business,  and  while  the 
charter  did  not  grant  this  company  the  right  to  issue  circulating 
bills,  nevertheless,  as  early  as  May  16,  1837,  it  advertised  itself  as 
willing,  in  view  of  the  scarcity  of  money,  to  take  advantage  of  a 
clause  permitting  it  to  receive  money  on  deposit  and  to  loan  these 
funds  for  the  benefit  of  the  community.  Immediately,  the  company 
issued  certificates  of  deposit  which  the  community  was  only  too 
ready  to  accept  and  circulate  as  money.  It  was  this  action  which 
soon  inspired  George  Smith  of  Chicago,  together  with  Alexander 
Mitchell  of  Milwaukee,  to  establish  the  Wisconsin  Marine  &  Fire 
Insurance  Company  that  for  many  years  gave  Chicago  and  a  large 
part  of  the  west  the  only  currency  everywhere  acceptable  because 
of  its  intrinsic  worth.  While  the  Chicago  Marine  &  Fire  Insurance 
Company  did  not  itself  issue  any  great  amount  of  certificates  for 
circulation,  it  had  performed  for  Chicago  and  the  west  a  great  bank- 
ing service  in  suggesting  a  type  of  currency  that  was  feasible  for 
the  promotion  of  commerce.  Some  years  later  this  same  institution — 
then  reorganized  as  the  Marine  Bank  of  Chicago — was  again  to  show 
its  pioneering  spirit  when,  under  the  leadership  of  J.  Young  Scam- 
mon,  it  was  the  first  bank  in  Chicago  to  file  a  certificate  of  organiza- 
tion under  the  new  banking  law  of  1851.  No  sooner  had  the  law 
been  ratified  by  popular  vote  than  the  bank  was  started.  The  cer- 
tificate of  organization  was  received  on  January  13,  1852,  and  by 
May  20  the  capital  of  fifty  thousand  dollars  had  been  increased  by 
one-half  million.  On  October  20  of  that  year  the  new  bank  depos- 
ited bonds  with  the  state  auditor  and  secured  a  circulation  of  $99,044. 
President  Scammon  and  Cashier  Edward  I.  Tinkham  announced 
the  bank's  new  bills  in  the  Chicago  Democrat  of  April  21  through 
an  advertisement  which  read: 


142  FINANCING  AN  EMPIRE 

"MARINE  BANK— The  bills  of  this  bank,  the  first 
issue  under  the  General  Banking  Law,  made  their 
appearance  on  Saturday,  April  17.  The  plate  is  a  very 
fine  one  and  will  not  be  an  easy  one  to  counterfeit." 

Among  the  strong  financial  institutions  of  Chicago  in  the  fifties 
was  one  known  as  "Swift's  Bank"  of  which  the  proprietors  were 
R.  K.  and  Lyman  P.  Swift  and  J.  S.  Johnson.  This  bank  did  an 
extensive  business  at  the  corner  of  Randolph  and  La  Salle  streets, 
and  was  a  pioneer,  too,  in  many  respects.  According  to  records 
left,  it  appears  that  Swift's  Bank  was  the  first  to  establish  banking 
exchange  with  the  Pacific  Coast  and  was  also  the  first  to  install  a 
woman's  department.  Both  of  these  new  branches  were  advertised 
in  the  press  of  Chicago  on  September  18,  1849.  The  printed  notice 
regarding  the  former  service  read  to  the  effect  that  those  making 
loans  or  discounts  might  contract  to  make  payment  at  the  office  of 
E.  &  R.  K.  Swift  in  San  Francisco,  and  have  interest  stopped  pro 
rata  from  the  date  of  payment  there.  Payments  might  also  be  made 
by  drafts  drawn  on  the  subscriber  by  said  E.  &  R.  K.  Swift  of  San 
Francisco,  interest  likewise  to  stop  pro  rata,  either  from  date,  sight, 
or  maturity,  according  to  the  contract  at  the  time  of  making  the 
loans  or  discounts.  The  notice  added  that  the  rate  of  interest  would 
necessarily  be  high  and  that  most  rigid  scrutiny  would  be  required. 
Also,  the  company  would  remit  money  to  and  from  San  Francisco, 
receive  deposits  of  money  from  that  city  and  remit  to  any  of  the 
leading  cities  in  the  United  States,  Canada,  or  Europe,  and  ship 
packages  of  goods  from  Chicago  by  way  of  New  York  and  Cape 
Horn  to  San  Francisco. 

The  notice  announcing  the  first  woman's  department  of  any  bank 
said  that  Mr.  Swift  would  receive  deposits  of  money  from  ladies 
at  his  residence — 48  Michigan  Avenue — and  allow  them  one  per 
cent  more  in  interest  on  such  deposits  than  would  be  given  the  men 
of  the  community,  who  were  invited  to  transact  their  business  at  the 
^rni's  office  "over  Kohn's  store  at  111  Lake  Street."  According  to 
the  notice,  the  rates  allowed  men  were:  On  certificates  payable  five 
days  after  demand,  four  per  cent;  ten  days,  five  per  cent;  fifteen 
days,  six  per  cent;  twenty  days,  seven  per  cent;  twenty-five  days, 
eight  per  cent;  thirty  days,  nine  per  cent;  and  forty-five  days,  ten 
per  cent — provided  the  sums  deposited  by  one  person  should  exceed 
one  thousand  dollars.     (Andreas:     History  of  Chicago,  1:536) 


GURDOX  S.  HUBBARD 
Chicago's  first   Banker. 


WTLLTAM  H.  BROWN,  FIRST  CASHIER  OF 

CHICAGO  BRANCH  OF   STATE   BANK 

OF   ILLINOIS,    183.3,   AND   WIFE 


HISTORY  OF  BANKING  IN  ILLINOIS  145 

Until  1852  all  banking  in  Chicago,  whether  legal  or  illegal,  had 
been  conducted  purely  for  profit.  Now,  however,  a  new  element 
came  in — that  of  idealism.  It  was  introduced  by  Seth  Paine,  a  na- 
tive of  New  England  who  had  come  west  in  1834.  Paine  had  hired 
out  with  a  number  of  firms  in  succession  and  in  time  came  to  be  a 
heavy  owner  and  one  of  the  managers  of  the  Illinois  River  Bank — 
an  unchartered  institution  at  La  Salle.  In  spite  of  his  rather  rapid 
rise  from  a  penniless  state,  Paine's  radical  tendencies  soon  led  him 
to  assume  that  all  banking  businesses  were  run  on  a  dishonest  basis. 
So,  in  1852  he,  together  with  Ira  B.  Eddy,  set  up  the  "Bank  of  the 
City  of  Chicago"  which,  according  to  a  prospectus  issued,  was  to 
be  a  Christian  bank,  run  on  idealistic  and  ethical  principles.  Toward 
the  capital  of  the  new  bank  Paine  contributed  about  eleven  hundred 
dollars  and  Eddy  is  credited  with  having  put  in  some  four  thousand 
dollars.  Never  in  the  history  of  the  institution  did  the  capital  stock 
exceed  six  thousand  dollars,  but  supposedly  men  who  sympathized 
with  Paine  had  money  and  stood  ready  to  give  the  bank  a  strong 
financial  backing.  For  a  few  weeks  after  opening,  the  bank 
did  a  quiet  business  with  respectable  citizens  who  were  fully  in  ac- 
cord with  Paine's  ideals  for  banking,  but  it  soon  developed  that  the 
"isms"  and  "hobbies"  he  followed  were  so  extremely  radical  and 
so  closely  united  with  the  affairs  of  the  bank  that  the  institution 
could  not  be  otherwise  than  the  laughing  stock  of  the  community. 

First  of  all  an  organization  called  Harmony  Hall,  which  was 
the  headquarters  for  a  set  of  spiritualists  of  whose  church  both  Paine 
and  Eddy  were  prominent  members,  was  established  over  the  bank 
and  church  affairs  soon  became  so  involved  with  those  of  the  bank 
that  it  was  sometimes  difficult  to  tell  just  where  the  dividing  line 
between  finance  and  spiritualism  could  be  drawn.  Next,  Paine  be- 
gan to  issue  a  paper  called  the  "Christian  Banker"  in  which  he  still 
further  involved  the  affairs  of  Harmony  Hall  with  those  of  the 
bank  and,  consequently,  had  soon  discredited  the  bank  in  the  eyes 
of  all  except  followers  of  the  spiritualistic  cult.  Even  some  of  these 
must  have  been  disgusted  at  times  with  the  bold  way  in  which  Paine 
attacked  his  competitors.  Nothing  seemed  too  unrefined  to  print 
where  prominent  financiers  and  other  business  men  of  the  city  were 
concerned.  Finally,  these  attacks  became  so  violent  and  the  bank's 
ties  with  spiritualism  so  firm  that  many  people  believed  Paine  had 
gone  mad  and  therefore  refused  to  accept  any  of  the  bills  of  his 
bank.     As  soon  as  put  into  circulation,  his  bills  were  promptly  re- 


146  FINANCING  AN  EMPIRE 

turned  for  redemption.  Even  though  Paine's  circulation  never  ex- 
ceeded four  thousand  dollars,  the  bills  returned  so  rapidly  that  he 
found  some  difficulty  in  meeting  the  demands  for  specie  payments. 
Paine  had  intended  to  make  his  circulation  a  great  source  of  profit 
and  happiness  to  the  community.  Instead  it  had  become  a  tremen- 
dous annoyance  to  himself.  The  community  had  entirely  discredited 
it  as  a  medium  of  any  value. 

Soon  a  crisis  was  reached  in  which  something  had  to  be  done  to 
save  the  bank,  and  what  better  for  a  man  such  as  Paine  than  to  turn 
to  his  spirit  advisors?  The  "High  Priestess"  of  Harmony  Hall,  who 
was  the  medium  through  whom  all  messages  came,  was  called  down 
to  the  bank  and  enshrined  in  the  banking  room;  there,  claiming  to 
have  contact  with  the  spirit  of  Alexander  Hamilton,  she  advised  the 
bank  on  every  minute  detail.  When  notes  were  presented  "Alex- 
ander Hamilton"  was  consulted  as  to  whether  or  not  the  holder 
were  worthy  of  receiving  specie  payment.  Mr.  Hamilton  denied 
this  privilege  to  all  smokers,  drinkers,  and  competing  bankers.  His 
dictates  were  final  and,  to  make  them  doubly  so,  a  band  of  spir- 
itualists stationed  at  the  door  added,  material  assistance  to  the  spir- 
itual dictates  in  the  cases  of  any  who  showed  signs  of  making  trou- 
ble. This  state  of  affairs  went  on  until  February,  1853,  when  the 
whole  corps  of  the  bank,  including  medium,  officers,  and  guards,  was 
arrested.  The  bank  never  again  resumed  business  sufficiently  to  be 
a  disturbing  factor.  It  did  pay  every  one  of  its  bills  and  all  debts. 
Paine  retired  to  a  farm  after  a  short  period  of  continual  protests 
through  the  "Christian  Banker." 

By  the  time  the  Free  Banking  System  was  adopted  by  the  state 
in  1851,  Chicago  had  become  not  only  the  leading  banking  center  of 
Illinois,  but  of  the  west  as  well.  Between  the  passage  of  the  law  and 
the  panic  of  1857  the  following  banks  were  organized  in  the  city  under 
the  laws  of  the  state: 

The  Marine  Bank  of  Chicago,  chartered  January  13,  1852,  J. 
Young  Scammon,  president;  Edward  I.  Tinkham,  cashier.  Paid-in 
capital,  $150,000.     Circulation,  $99,044. 

Bank  of  A m erica,  chartered  July  19,  1852.  This  was  a  proprie- 
tary bank  owned  by  George  Smith  and  Elisha  Willard — a  re-organ- 
ization of  George  Smith  and  Company.  Paid-in  capital,  $50,000. 
Circulation,  $50,000. 


HISTORY  OF  BANKING  IN  ILLINOIS  147 

The  Bank  of  Commerce,  incorporated  in  May,  1852.  Alfred  W. 
Davison,  president ;  Thomas  McCalla,  cashier.  Paid-in  capital,  $52,- 
000.     Circulation,  $50,000. 

The  City  Bank,  chartered  June  26,  1852.  Owned  by  Bradley 
and  Curtiss.     Capital,  $200,000.     Circulation,  $59,994. 

The  Chicago  Bank,  incorporated  July,  1852.  President,  Thomas 
Burch;  cashier,  I.  H.  Burch.  Paid-in  capital,  $59,501.29.  Circula- 
tion, $53,997. 

The  Exchange  Bank,  organized  in  January,  1853.  H.  A.  Tucker, 
president;  Hamilton  B.  Dox,  cashier.  Capital  unknown.  Circula- 
tion, $49,995. 

The  Union  Bank,  organized  August  18,  1852.  Paid-in  capital, 
$50,000.  Circulation,  $49,995.  Owned  largely  by  Forrest  Brothers 
and  Company. 

The  Farmer's  Bank,  organized  December  25,  1853.  Owned  by 
Chase  Brothers  and  Company.  Capital  unknown.  Circulation 
about  $50,000. 

The  Phoenix  Bank,  organized  in  1854.  Owned  by  N.  C.  Roe  and 
Company.     Circulation,  $50,000. 

Merchants'  and  Mechanics'  Bank,  organized  February,  1852. 
Levi  Boone,  president;  Stephen  Bronson,  cashier.  Capital  $100,000. 
Circulation,  $54,700. 

While  financial  storms  of  1856  forced  some  of  these  banks  to 
close  and  some  met  with  other  disasters,  no  material  loss  ever  came 
to  the  holders  of  their  bills.  As  a  result,  the  law  under  which  they 
had  been  organized  continued  to  grow  in  popular  favor  until  the 
war  in  1861  destroyed  the  very  basis  upon  which  the  banks  were 
founded  and  later  forced  an  abandonment  of  all  banking  under  state 
laws. 

In  addition  to  the  banks  operating  under  the  state  law  of  1851, 
there  were  in  Chicago  a  number  of  strong  financial  institutions  among 
which  were  the  Butchers'  and  Drovers'  Bank,  located  at  the  corner 
of  North  Water  and  North  Clark  streets  and  then  the  only  bank  on 
the  north  side  of  the  Chicago  River;  the  Metropolitan  Bank,  which 
was  purely  a  bank  of  deposit,  run  by  Gurley  and  Farlin;  and  Swift's 
Bank,  of  which  previous  mention  has  been  made.  Among  savings 
institutions,  those  which  were  most  prominent  in  Chicago  were  the 
Chicago  Savings  Bank,  the  Dollar  Savings  Bank,  the  Dime  Sav- 
ings Bank,  and  the  Marine  Savings  Bank.  The  last  named  was  a 
department  of  the  Marine  Company.     In  1855-6,  John  Kinzie,  who 


148 


FINANCING  AN  EMPIRE 


had  been  president  of  the  first  bank  established  in  Chicago,  organ- 
ized the  Illinois  Savings  Institution.  He  acted  as  president  until 
1859  when  he  was  succeeded  by  John  C.  Haines.  In  1857  the  Mer- 
chants' Savings  Loan  and  Trust  Company  was  organized  and  sur- 
vived the  vicissitudes  of  war  and  disaster  many  years  after  any  other 
bank  organized  in  this  period. 


TheBankof  Chicago 


The  Bank  of  Chicago-  \ 


/■/»/„/,//,//////m/r!!H'.y;o       ;'  ^ 


^       xiuiii  m.r.-  'i- 


(Courtesy  I).  ('.  Wismerl 

SETH   PAINE 'S  BANK  NOTES 


CHAPTER  VIII 
DESTRUCTION  OF  ILLINOIS  BANKS 

Status  of  banks  in  1860 — Depreciation  of  Southern  securities  after  election  of  President 
Lincoln — Civil  War — Banking  amendment  of  1861 — Adjustment  to  war  conditions 
— Local  currency  replaced  by  government  notes — Suspension  of  state  banks — 
Taxing  local  currency  out  of  existence — Loss  of  confidence  in  banks  of  Illinois — 
Expulsion  of  32  banks  from  redemption  list — Continued  depreciation  of  bonds 
securing  currency — Varying  values  of  circulating  currency — Counterfeiting — 
Efforts  to  keep  bank  notes  in  circulation — Suggestions  for  banking  reform — Liqui- 
dation of  the  Marine  Bank  of  Chicago — Values  of  state  bonds  in  1862 — Official 
statement  of  Illinois'  banks  in  1860 — Attempt  to  establish  new  banking  law — 
Anti-bank  provisions  in  constitutional  convention  of  1861 — Increasing  wealth  in 
Illinois — End  of  state  banks. 

When  the  year  1860  was  reached,  good  business  prevailed  but 
the  panic  which  had  begun  its  sweep  across  the  United  States  in 
1857  had  reduced  the  number  of  banks  in  Illinois  to  seventy-four. 
In  the  whole  country  there  were  only  sixteen  hundred  and  forty-two 
banking  institutions  reported  while  among  the  western  states  only 
Wisconsin  with  one  hundred  and  eight  and  Indiana  with  ninety- 
seven  had  more  banks  than  Illinois.  Of  these  seventy-four  banks 
in  Illinois,  more  than  half  were  banks  of  circulation  only  and  many 
of  them  did  no  business  in  their  nominal  location.  The  situation  is 
aptly  portrayed  in  one  of  George  Ade's  writings  in  which  he  de- 
scribes the  bank  that  promoters  established  in  his  Indiana  home 
town — a  place  so  small,  remote,  and  hard  to  find  that  it  was  entitled 
to  a  bank,  "So  the  Bank  of  America  was  founded,"  says  Mr.  Ade. 
"The  founders  might  have  called  it  the  Bank  of  the  Western  Hem- 
isphere or  the  Bank  of  the  Solar  System,  but  they  preferred  to  be 
modest.  They  deposited  certain  collateral  with  the  state  treasurer 
and  then  they  floated  seventy-five  thousand  dollars'  worth  of  notes, 
redeemable  only  at  the  bank  of  issue.  These  notes  went  into  cir- 
culation and  finally  one  bold  explorer  went  across  the  prairies  on 
horseback  and  discovered  the  town  of  Morocco  and  inquired  about 
the  bank  and  demanded  money  on  his  notes  and  made  so  much  trou- 

149 


150  FINANCING  AN  EMPIRE 

ble  that  the  bank  went  out  of  business.  The  bankers  said  it  was  no 
use  trying  to  keep  a  bank  open  if  people  insisted  on  coming  in  and 
asking  for  money  on  their  wild-cat  paper."  (Regarding  Banks — 
Then  and  Now — A  preface  to  "The  Making  of  a  Trust  Company" 
by  William  T.  Cross,  published  by  Chicago  Trust  Company,  1923.) 

At  this  time  (1860)  the  bank  circulation  in  Illinois  amounted  to 
forty  dollars  for  each  one  dollar  of  specie  in  reserve.  Furthermore, 
this  single  specie  dollar  also  was  expected  to  give  some  protection 
to  any  deposits  that  the  banks  of  the  state  might  have.  Throughout 
the  whole  country  it  was  generally  recognized  that  Illinois  did  not 
use  a  currency  having  a  specie  value.  Even  in  Chicago  it  was  hard 
to  buy  gold.  From  time  to  time  plans  were  made  for  the  redemption 
of  the  currency  afloat,  but  usually  these  were  limited  to  the  redemp- 
tion of  notes  in  exchange  upon  the  issues  of  some  more  fortunate 
state.  No  wonder  elaborate  tactics,  such  as  Mr.  Ade  described,  had 
to  be  resorted  to! 

The  papers  of  the  day  gave  much  space  to  demands  for  improve- 
ments in  the  banking  system.  On  January  5,  1860,  the  Chicago 
Tribune  carried  an  editorial  which  said  that  the  currency  of  the 
country  had  improperly  and  unconstitutionally  fallen  into  the  hands 
of  state  legislatures  until  the  establishment  of  a  bullion  bank  had 
become  an  impossibility.  The  editor  urged  that  some  private  indi- 
viduals with  the  necessary  wealth  and  a  proper  public  spirit  set  up 
a  "Bullion  Savings  Bank"  with  sufficient  capital  to  protect  depos- 
itors and  secure  public  confidence.  In  this  bank  capital  would  be 
subscribed  in  coin  and  no  deposits  would  be  received  except  in  coin. 
In  time  perhaps  this  plan  would  enable  the  masses  who  owned  coin 
to  receive  interest  thereon  instead  of  the  indirect  tax  they  were  now 
paying  because  of  the  drain  of  the  existing  money  system.  To  ob- 
viate the  necessity  of  dealing  in  much  bulky  coin,  this  bank  might  be 
permitted  to  issue  certificates  of  indebtedness  in  denominations  as 
small  as  twenty  dollars.  To  keep  the  coin  in  circluation,  loans  of 
long  duration  would  not  be  made.  Then,  having  made  all  these  sug- 
gestions, the  newspaper  made  the  most  important  point  of  all — 
that  this  new  bank  would  have  a  capital,  which  those  then  in  exist- 
ence did  not  really  possess.  Under  such  safeguards,  it  said,  a  bank 
with  deposits  of  one  million  dollars  could  be  developed  in  Chicago 
with  much  profit  both  to  the  community  and  to  the  owners  of  the 
institution.  As  a  final  plea  for  the  establishment  of  such  a  bank, 
the  Tribune  urged  that,  if  no  public  spirited  citizen  could  be  found 


ABRAHAM  LINCOLN 


HISTORY  OF  BANKING  IN  ILLINOIS   .  153 

to  consider  the  undertaking,  the  City  of  Chicago  herself  go  into  the 
banking  business  for  the  benefit  of  her  trade. 

This  was  the  banking  situation  in  Illinois- — a  system  not  by  any 
means  beyond  criticism,  but  yet  a  system  that  had  managed  to 
weather  the  storms  of  18.57 — when  in  1860  Lincoln  was  elected  to 
the  presidency  of  the  United  States.  The  Free  Banking  System, 
adopted  by  Illinois,  was  then  in  more  or  less  successful  operation  in 
thirteen  states:  New  York,  where  it  was  established  in  1838;  Mich- 
igan, 1849;  Xew  Jersey,  1850;  Virginia,  1851;  Illinois,  1851;  Ohio, 
1851;  Indiana,  1852;  Tennessee,  1852;  Louisiana,  1853;  Wisconsin, 
1854;  Missouri,  1856;  Iowa,  1858;  and  Minnesota,  1858.  On  the 
whole,  however,  the  principle  cannot  be  said  to  have  worked  out 
well  except  in  New  York  where  years  of  alterations  were  required 
to  put  it  into  satisfactory  operation.  Of  all  these  states  only  Xew 
York  held  a  larger  amount  of  stocks  securing  her  circulation  than 
did  Illinois — but  New  York,  Louisiana  and  Virginia  all  issued  more 
currency  than  did  Illinois. 

At  the  time  of  the  presidential  election,  business  was  so  good  that 
the  banks  had  increased  their  circulation  and  inflated  currency  until 
the  state  of  Illinois  had  an  aggregate  circulation  of  $12,320,694, 
secured  by  deposits  of  United  States  and  state  securities  with  a  par 
value  of  $14,000,000.  Of  this  amount  $9,527,500  consisted  of  bonds 
of  the  southern  states.  (Andreas,  History  of  Chicago,  II:  619.) 
Immediately  following  the  election,  the  credit  of  the  south  be- 
gan to  diminish.  Large  deposits  held  by  that  part  of  the  country 
in  northern  banks  were  suddenly  withdrawn,  which  together  with 
the  depreciation  in  southern  securities  threatened  financial  chaos  for 
Illinois.  At  first  the  banking  interests  reacted  conservatively  and 
even  recommended  losses  on  their  own  part  to  pacify  the  south — an 
important  decision,  since  their  circulation  was  dependent  on  the  mar- 
ketability of  southern  bonds.  No  effort,  however,  could  prevent  the 
oncoming  storm.  On  December  20,  1860,  South  Carolina  seceded 
and  by  the  beginning  of  1861  general  secession  had  become  a  settled 
fact.  On  February  4  the  Southern  Confederacy  was  formed  and 
on  April  12  the  first  shot  of  the  war  was  fired  at  Fort  Sumter. 

The  General  Assembly  attempted  to  adjust  the  banking  sys- 
tem to  these  new  conditions  by  enacting  an  amendment,  on  Febru- 
ary 14,  1861,  which  provided  a  central  redemption  system  and  quar- 
terly reports,  and  restricted  securities  which  might  be  deposited  with 
the  state  auditor  against  circulation  to  the  issues  of  the  United  States 


154  FINANCING  AN  EMPIRE 

and  the  state  of  Illinois.  The  banks  acted  upon  this  fairly  quickly 
so  that  by  the  end  of  the  year  the  bulk  of  their  holdings  in  the  hands 
of  the  state  auditor  complied  with  the  new  amendment. 

After  southern  securities  had  declined  considerably,  a  number 
of  bankers — particularly  in  Chicago — realizing  that  a  state  of  war 
with  the  south  was  pending,  refused  to  accept  the  circulation  of  any 
banks  on  which  the  state  auditor  had  made  call  for  additional  bonds. 
In  making  such  call,  it  was  customary  for  the  auditor  to  allow  forty 
days  of  grace,  but,  considering  the  rapidity  with  which  some  state 
issues  were  dropping  in  value,  conservative  bankers  knew  forty  days 
to  be  too  long  a  period  to  be  trusted  with  continued  circulation 
against  these  bonds.  Since  at  the  same  time  the  issues  of  nearly  all 
northern  states  Mere  likewise  depreciating,  to  foreclose  on  the  banks 
under  call  for  southern  paper  was  certain  to  involve  large  num- 
bers of  those  holding  the  issues  of  other  states  as  well.  Adjustment 
to  the  new  amendment  of  1861  could  not  therefore  be  made  even 
in  the  forty-day  limit.  Thereupon,  it  was  provided  that  sixty  days 
of  grace  might  be  allowed  and  that  if  deposited  securities  which  had 
been  below  par  for  two  years  were  exchanged  for  those  which  had 
been  maintained  at  their  par  value  for  that  length  of  time,  notes  up 
to  the  full  face  value  of  the  latter  could  be  issued  up  to  September, 

1861.  After  that  date  the  usual  ten  per  cent  margin  between  notes 
and  securities  was  to  be  required.  Also,  it  was  provided  that,  instead 
of  further  upsetting  the  bond  market  by  selling  securities  in  order 
to  redeem  notes  with  specie,  the  state  auditor  might  redeem  them 
directly  with  bonds.  Redemption  through  central  agencies  at  Chi- 
cago and  Springfield  was  to  be  made  at  a  discount  of  not  more  than 
three-quarters  of  one  per  cent  during   1861   and  after  January   1, 

1862,  at  not  more  than  one-half  of  one  per  cent.  Banks  in  operation 
before  the  passage  of  this  act  were  not  required  to  meet  the  central 
redemption  clause,  but  those  organized  afterward  must  have  such 
facilities. 

According  to  the  act,  people  protesting  notes  of  banks  using  an 
agency  could  obtain  only  six  per  cent  interest  until  the  notes  were 
paid  instead  of  the  twelve  per  cent  customary  otherwise.  Any  bank 
might  increase  its  circulation  as  much  as  desired  by  simply  deposit- 
ing more  Illinois  bonds  with  the  state  auditor,  who  would  then  pro- 
vide the  bank  with  circulation  up  to  the  par  value  of  bonds  which 
as  the  war  progressed  rapidly  dropped  to  a  market  value  of  far  less 
than  par.     This  provision,  according  to  the  Chicago  Tribune  of  An- 


HISTORY  OF  BANKING  IN  ILLINOIS     .  155 

gust  12,  1861,  made  the  law  just  as  good  for  "wild  cats"  as  for  those 
banks  which  wished  to  promote  a  legitimate  business.  Each  six 
months  the  banks  were  required  to  give  a  complete  list  of  stockhold- 
ers and  their  holdings,  and  quarterly  statements  from  the  governor 
and  commissioners  were  demanded  which  .were  to  show  the  value  of 
securities  on  deposit.  It  was  also  provided  that  notes  for  more  than 
three  times  the  capital  stock  of  a  bank  could  not  be  issued — but  it 
must  be  remembered  that  the  capital  stock  was  not  required  to  be 
paid  up  in  full.  Also  provisions  were  made  against  troubles  experi- 
enced, particularly  in  the  southern  part  of  the  state,  with  banks  still 
in  remote  communities  which  issued  their  circulation  at  great  dis- 
tances from  home,  in  a  legislative  amendment  prohibiting  the  estab- 
lishment of  banks  in  towns  of  less  than  one  thousand  inhabitants, 
unless  those  towns  were  county  seats.  Charters  of  all  banks  having 
no  bona  fide  officers  or  places  of  doing  business  were  to  be  forfeited 
and  lending  through  a  third  party  was  made  punishable  by  forfeiture 
of  all  interest  due.  Regardless  of  whether  or  not  the  bank  issued 
notes,  a  minimum  bond  deposit  of  five  thousand  dollars  must  be  kept 
with  the  state  auditor. 

Reports  of  suggested  amendments  to  the  banking  bill,  according 
to  the  press  of  the  time,  met  with  the  approval  of  business  men  and 
bankers.  The  situation  had  reached  the  point  where  many  business 
men  were  thinking  of  leaving  the  state  and  establishing  themselves 
elsewhere  unless  Illinois  instituted  some  such  banking  reform. 
Under  the  heading  "Timely  Warning"  the  Chicago  Tribune  of  Jan- 
uary 19,  1861,  asked  to  know  why  there  was  a  flood  of  bank  notes 
and  no  banks — why  the  tellers  now  loved  to  fondle  such  few  good 
notes  of  the  good  old  days  of  the  Marine  Bank  and  George  Smith. 
In  those  days,  according  to  the  article,  banks  were  founded  on  cap- 
ital and  now  they  were  crying  against  an  amendment  which  pro- 
posed to  put  sound  bonds  back  of  the  currency  as  "crippling  the 
banks."  The  paper  then  asked  how  it  was  possible  to  cripple  a  bank 
which  had  never  had  a  president,  cashier,  or  capital.  The  fact  was 
pointed  out  that  circulation  was  issued  on  bonds  which  represented 
borrowed  money  and  that  these  very  bonds,  in  turn,  had  been  bor- 
rowed by  some  of  the  banks.  One  case  was  cited  of  a  bank  which, 
in  order  to  start  business,  borrowed  bonds  for  sixty  days  on  Wall 
Street,  deposited  them  with  the  state  auditor  and  received  an  equiv- 
alent amount  of  currency,  bought  wheat  with  the  currency,  sent  the 
wheat  east  to  be  sold  for  gold,  and  then  paid  the  broker  for  the 


156  FINANCING  AN  EMPIRE 

bonds  with  the  gold.  "This,"  the  Tribune  added,  "is  your  bank 
and  this  process  is  called  'moving  the  crops.'  On  February  15, 
1861,  the  Tribune  reported  that  the  bank  bill  had  passed  both  houses 
and  early  in  March  recorded  the  fact  that  the  governor  had  appointed 
a  particularly  efficient  board  of  banking  commissioners,  so  that 
thereafter  it  might  be  expected  that  there  would  be  no  more  trouble 
with  "our  vicious  and  fluctuating  currency." 

Possibly  this  amendment  might  have  remedied  a  situation  in  which 
such  large  amounts  of  notes  of  little  worth  were  in  circulation  and 
in  which  no  one  knew  from  day  to  day  the  value  of  his  money,  had 
it  received  a  fair  trial.  However,  government  needs  soon  put  green- 
backs and,  then  a  little  later,  national  bank  notes  on  the  market, 
and  these  soon  displaced  local  currency.  By  1862  the  state  auditor's 
report  showed  only  sixty-two  banks  remaining.  Two  years  later 
there  were  only  twenty-three,  with  ninety-eight  suspended  up  to  that 
time.  In  1866  the  federal  tax  on  state  bank  notes  drove  most  of 
the  currency,  which  until  then  had  persisted,  out  of  circulation  and 
by  1869,  according  to  the  state  auditor's  report,  there  were  only  $531 
in  bank  notes  outstanding  in  the  state. 

In  March,  1861,  at  which  time  twenty-two  banks  were  to  make 
good  the  demand  of  the  commissioners  for  more  security  to  cover 
their  notes,  seventeen  with  a  total  circulation  of  $2,726,795  were 
unable  to  comply  and  were  placed  in  liquidation.  By  now  southern 
states  were  seceding  one  at  a  time  and  their  bonds  were  declining 
more  and  more  rapidly  in  market  value.  The  bonds  of  Missouri, 
which  on  April  1  were  quoted  at  sixty-seven  cents  on  the  dollar, 
were  worth  only  fifty-one  by  the  seventeenth  and  their  future  pros- 
pects were  growing  steadily  less  attractive.  By  the  end  of  April 
Chicago  bankers,  who  had  previously  carried  the  bills  of  a  large 
number  of  Illinois  banks  whose  bonds  securing  their  currency  had 
depreciated,  made  a  list  of  thirty-two  which  they  felt  could  not  be 
carried  any  longer  unless  the  deficiencies  were  speedily  made  up. 
This  decision  was  really  brought  about  by  a  citizen  who  circulated 
an  article  entitled  "Stand  from  Under,"  warning  the  people  of  the 
state  against  taking  the  notes  of  these  thirty-two  banks.  Imme- 
diately the  issues  of  these  banks  flowed  into  the  offices  of  Chicago 
bankers  for  redemption  in  such  quantities  that  it  seemed  the  bankers 
would  soon  have  millions  of  them  on  hand.  Since  the  southern  bonds 
securing  these  bills  appeared  not  likely  to  rise  in  value,  the  bankers 
could   not  well   undertake  the  risk  of  holding  large  quantities  of 


(Courtesy  of  H.  B.  Barker.  Lincoln  Collector,  Springfield,  III.) 

THE  STUMP  TAIL  GUARD  WHO  CANCELLED  WILD  CAT  MONEY 
Top  row,  left  to  right:    William  Ridgely,  Orson  Smith,  P.  H.  Burt,  John  W.   Pnmn,  Alfred 

Spink,  C.  H.  Philbrick,  John  B.  Adams,  E.  P.  Harris,  H.  L.  Davis. 

2nd   row:     M.    V.    Hall,   O.    H.   Miner,    Col.   Hall   Wilson,    E.   F.    Leonard,    W.   H.   Marson. 

In  front:    Noah  Divilbiss.     Photograph  taken  in  1867. 


HISTORY  OF  BANKING  IN  ILLINOIS  159 

this  currency  and  so  were  forced  to  discredit  it,  even  at  a  greater 
loss  to  themselves  than  to  their  depositors.  In  addition  to  these 
thirty-two,  nine  others  had  been  previously  thrown  out  and  the  sit- 
uation which  now  developed  was  subsequently  referred  to  as  an  "era" 
in  the  financial  annals  of  Chicago. 

As  this  decision  of  the  banks  was  reached  on  a  Saturday  and 
was  not  to  go  into  effect  until  the  following  Monday,  owners  of 
discredited  notes  were  given  a  day  or  more  in  which  to  unload  their 
holdings  on  unsuspecting  individuals  who  had  not  yet  heard  the 
bad  news.  It  is  said  that  in  his  haste  to  get  rid  of  the  useless  bills, 
every  debtor  hurried  to  his  creditors  to  pay  his  debts  with  them.  One 
story  is  told  of  a  man  who  sold  wheat  before  the  news  came  out, 
taking  in  a  thousand  discredited  bills.  When  he  discovered  how 
useless  was  the  money  he  had  received,  he  went  back,  told  the  per- 
son to  whom  he  had  made  the  sale  that  he  had  been  overpaid,  and 
wanted  to  return  all  the  money  and  be  paid  again.  The  buyer  of 
the  wheat,  however,  was  far  too  clever  to  be  taken  in  by  such  tactics 
and  refused,  saying  that  he  had  never  yet  made  a  mistake  in  count- 
ing money  and  that  if  he  had  done  so  now  he  would  be  a  good  enough 
sport  to  let  it  pass,  as  the  lesson  was  worth  a  few  hundred  dollars 
to  him.  Everywhere  men  rushed  about,  madly  trying  one  means 
or  another  for  disposing  of  their  discredited  bills,  until  it  seemed 
that  everybody  in  the  city  had  his  hands  full  of  hot  chestnuts  which 
he  could  not  wait  to  pass  on  to  another,  lest  he  be  burned  by  them. 

The  monetary  column  of  the  Chicago  Tribune,  of  April  2,  18G1, 
immediately  after  the  discrediting  of  these  banks,  listed  all  banks 
in  the  state  and  showed  that  there  were  then  sixty-four  doing  busi- 
ness with  their  notes  still  accepted,  while  thirty-nine  were  doing 
business  but  with  their  notes  in  disrepute.  In  all,  there  were  one 
hundred  and  three  banks  in  the  state.  According  to  this  list,  already 
a  number  of  the  recently  rejected  thirty-two  had  managed  to  make 
good  their  deficits  and  had  returned  to  good  standing.  The  same 
paper  urged  people  to  watch  the  quotations  on  bank  notes  with 
great  care  and  select  for  their  own  use  only  those  listed  at  par;  of 
the  one  hundred  and  three  issuing  paper,  only  twenty-six  were  then 
able  to  meet  this  desired  requirement. 

Outside  Chicago  such  discredited  notes  were  sometimes  accepted 
at  fifty  cents  on  the  dollar  while  the  paper  of  other  banks  circulated 
as  usual.  General  financial  disorder  reigned  and  uncertainty  be- 
came so  great  that  exchange  on  the  east  not  only  rose  rapidly  but, 


160  FINANCING  AN  EMPIRE 

what  is  worse,  varied  in  price  according  to  the  bills  offered.  New 
York  exchange  quickly  reached  a  premium  of  twenty  per  cent  and 
showed  signs  of  going  higher.  By  May  15,  Missouri  bonds  had 
fallen  to  thirty-five  cents  on  the  dollar,  Tennessee  to  forty-five,  and 
Virginia  to  forty-three.  Currency  became  so  variable  as  to  be  of 
little  use  as  money.  The  bills  of  banks  backed  by  northern  securi- 
ties, or  those  of  banks  which  had  made  good  their  bond  deficits,  re- 
tired from  circulation,  driven  out  by  those  of  the  less  stable  banks. 
The  poorer  bills  flooded  the  country  and  it  became  necessary  for 
daily  bulletins  to  be  issued  listing  bills  according  to  their  present 
worth  in  terms  of  exchange  and  specie.  According  to  these  valua- 
tions, circulating  bills  were  worth  anywhere  from  twenty  per  cent 
to  par.  Besides,  the  railroads,  the  lumbermen,  the  board  of  trade, 
and  other  groups  also  issued  lists  showing  the  current  value  of  bills 
no  two  of  which  lists  agreed.  No  matter  how  often  such  tables 
might  be  published,  currency  fluctuated  so  rapidly  that  they  could 
be  of  little  use.  No  holder  of  bank  bills  knew  from  one  day  to  the 
next  how  much  he  was  worth.  Bills  quoted  as  bankable  one  day 
were  thrown  out  the  next,  and  no  one  could  tell  when  he  lay  down 
at  night  whether  or  not  he  would  have  enough  current  money  in 
the  morning  to  pay  for  his  breakfast. 

The  situation  now  prevailing  in  Illinois  was  in  general  typical 
of  the  country  as  a  whole.  At  the  time  of  the  outbreak  of  the  Civil 
war  there  had  been  sixteen  hundred  banks  in  the  country,  each 
issuing  notes  of  different  size  and  design.  The  smaller  banks,  in 
particular,  could  not  afford  plates  of  sufficiently  intricate  design 
to  prevent  counterfeiting,  and  even  had  they  been  so  protected,  with 
sixteen  hundred  kinds  of  money  afloat,  no  individual  could  ever 
know  whether  he  had  a  real  note  or  a  fraudulent  one.  Therefore  a 
publication  known  as  the  "Bank  Note  Detector"  was  an  ever  pres- 
ent necessity  to  the  merchant  and  banker.  Many  of  these  "detec- 
tors" were  published,  each  describing  the  distinguishing  character- 
istics of  more  than  a  thousand  issues  and  giving  the  details  of  any 
counterfeits  or  alterations  and  of  the  issues  of  fictitious  banks.  This, 
however,  was  not  description  enough,  and  certain  earmarks — which 
also  could  be  artificially  given  to  fraudulent  notes — were  relied  upon 
to  a  great  extent.  If  a  note  were  well  worn  it  was  more  readily 
acceptable  than  otherwise,  as  this  indicated  that  others  had  found 
it  acceptable.    If  full  of  pin  holes  it  was  more  than  ever  to  be  relied 


HISTORY  OF  BANKING  IN  ILLINOIS     .  161 

upon,  for  this  indicated  that  it  had  gone  through  a  number  of  banks 
and  had  passed  muster  after  a  careful  inspection. 

On  April  29,  1861,  the  state  auditor  published  a  record  of  the 
bonds  which  he  held  against  circulation  in  the  state.  This  showed 
$3,988,596  in  northern  securities  and  $3,598,000  in  southern  issues 
against  a  circulation  of  $6,000,000.  According  to  press  reports  in 
Chicago,  this  showing  was  as  good  as  that  of  any  other  state  in 
the  Union.  But,  no  matter  how  good  it  may  have  been  by  compari- 
son, the  situation  was  a  perilous  one,  and  to  save  it  the  bankers  of 
Chicago  agreed  mutually  to  take  all  bills  of  a  certain  approved  list 
of  banks  and  circulate  them  as  money  for  all  purposes.  On  May  14 
the  business  men  of  Chicago  agreed  to  accept  this  same  list  of  bills 
and  no  others,  so  that  trade  might  be  kept  near  Chicago  instead  of 
giving  it  to  the  east  where  money  was  generally  more  acceptable. 
Tn  spite  of  their  decision,  within  two  weeks'  time  the  business  men 
found  that  such  an  agreement  would  only  bring  about  their  speedy 
ruin.  They  repudiated  it  and  tried  accepting  all  Illinois  currency 
at  whatever  price  it  would  bring  in  New  York  exchange.  This 
effort  likewise  proved  unsuccessful,  as  nobody  would  give  coin  in 
exchange  for  bank  notes  and  those  depositing  them  were  required 
by  the  banks  to  be  paid  off  again  in  the  same  kind  of  paper. 

Business  men  of  Springfield,  meantime,  would  not  accept  the 
notes  of  any  banks  except  those  which  had  deposited  northern  state 
bonds  with  the  state  auditor.  These  loyal  merchants  quickly  learned 
that  paper  money  then  in  circulation  was  far  too  unreliable  for  their 
purposes  and  they  demanded  thereafter  that  only  specie  be  accepted 
for  all  transactions.  Already,  Chicago  had  become  the  financial 
center  of  the  northwest  and  her  business  men  felt  that,  even  at  a 
sacrifice  to  themselves,  her  money  must  be  kept  on  a  sound  basis. 
After  this,  money  became  so  scarce  that  specie  was  forced  out  of 
hiding  and  into  circulation.  Large  numbers  of  bank  notes  were 
entirely  discredited  but,  even  so,  the  reduction  of  circulation  did  not 
greatly  affect  business,  as  it,  too,  had  so  diminished  in  volume  as  to 
be  carried  on  with  such  Illinois  bank  notes  as  were  still  in  good 
standing,  together  with  those  of  Indiana  and  Ohio  banks  in  circula- 
tion in  the  state.  By  July  of  1861  the  people  of  Chicago  were  ask- 
ing for  a  bank  conducted  on  a  specie  basis.  In  an  editorial  on  July 
3,  the  Chicago  Tribune  expressed  the  opinion  that  the  state  no  longer 
wanted  a  step-mother  to  forty  orphan  banks  in  southern  Illinois, 
Wisconsin,  or  Georgia.     The  merchants  of  the  city  were  being  tor- 


162  FINANCING  AN  EMPIRE 

mented  with  the  perpetual  difficulties  of  exchange,  all  of  which  could 
be  overcome  if  only  there  might  be  established  a  bank  that  did  not 
deal  in  paper  money.  "The  name  of  'bank,'  "  the  Tribune  said,  "has 
become  a  reproach  in  Illinois,  the  idea  is  offensive,  and  people  wish 
to  abolish  all  banks.  This  is  not  as  it  should  be."  Banks  of  the 
state  were  accused  of  being,  not  banks  at  all,  but  "debt  factories" 
and  an  attempt  was  made  by  some  to  put  the  blame  on  England 
for  herself  establishing  a  system  permitting  the  issue  of  obligations 
to  pay  money  on  demand  when  it  provided  no  money  with  which 
to  pay  them.  England's  "crime"  in  this  regard  was  not  that  she 
imposed  her  banks  on  Illinois,  but  only  that  she  had  set  an  example 
which  the  state  had  seen  fit  to  copy!  Whoever  may  have  been  to 
blame,  the  banking  system  of  those  days  was  indeed  crude.  To 
compare  the  published  statements  of  the  banks  of  1861  with  those 
of  today  gives  one  an  insight  into  some  of  the  reasons  why  the  bank- 
ing system  before  the  Civil  war  was  not  able  to  stand  up  under  any 
considerable  strain;  such  statements  showed  only  a  list  of  bonds 
held  by  the  state  auditor  against  circulation  and  gave  the  total  of 
circulation  outstanding.  Few  of  the  banks  did  any  business  other 
than  the  issuing  of  paper  money. 

No  sooner  was  there  talk  of  a  specie  bank  than  men  of  still  wider 
vision  began  to  urge  one  which  should  deal  in  nothing  but  gold.  This, 
in  turn,  was  objected  to  because  no  one  would  want  to  carry  about 
quantities  of  heavy  gold.  The  Tribune  of  July  11,  1861,  actually 
gave  weights  of  various  amounts  of  money  in  gold  to  convince  the 
doubters  that  sufficient  bullion  to  transact  business  could  be  trans- 
ported with  comparative  ease;  also,  the  paper  suggested  that  even 
with  a  bank  entirely  on  a  gold  basis,  a  system  of  checks  could  be 
used.  But  before  there  had  been  much  time  in  which  to  urge  a  gold 
bank,  there  arose  a  demand  for  the  "good  old  days"  and  another 
George  Smith  who  could  build  another  bank  on  a  capital  basis  and 
with  a  properly  conservative  management.  The  sweeping  away  of 
the  capital  of  commercial  interests  of  the  state  in  the  collapse  of  the 
banking  system  was  recognized  as  a  calamity  to  the  commerce  of 
the  west,  as  it  resulted  in  driving  all  the  business  which  had  formerly 
been  handled  through  Illinois  banks  into  the  east.  By  now  the  Illi- 
nois banking  system  was  quoted  by  the  press  of  other  sections  of  the 
country  as  a  "horrible  example"  of  the  disastrous  and  widespread 
effects  of  the  failure  of  local  banking  systems. 


(Courtesy   Central  Trust  Company) 

CHICAGO:    CLAEK  STREET  BETWEEN  LAKE  AND  RANDOLPH,  1857 


CHICAGO  CHAMBER  OF  COMMERCE,  1861 


HISTORY  OF  BANKING  IN  ILLINOIS*      .  165 

Even  so  strong  a  bank  as  the  Marine  of  Chicago  was  unable  to 
cope  with  the  situation  and  on  July  8  it  advertised  that,  owing  to 
the  depression  of  bonds  which  secured  circulating  notes,  both  it  and 
the  Chicago  Marine  and  Fire  Insurance  Company  had  decided  to 
go  into  liquidation;  the  advertisement  stated  that  these  institutions 
had  assets  sufficient  to  pay  all  debts.  In  the  year  1861  there  were 
ninety-one  commercial  failures  in  Chicago  and  three  hundred  and 
fifty  in  the  state  outside  of  Chicago.  The  following  year  there  were 
seventeen  in  Chicago  and  one  hundred  and  fifteen  throughout  the 
remainder  of  Illinois.  Whereas  in  July,  1860,  Illinois  had  had  a 
currency  of  twelve  millions  in  active  use,  a  year  later  this,  which 
the  press  chose  to  term  an  "enormous  amount,"  had  all  been  de- 
stroyed for  practical  purposes. 

Xotes  for  redemption  poured  into  the  office  of  the  state  auditor 
at  such  a  rate  that  on  at  least  one  occasion  he  had  to  close  his  doors 
until  the  accumulation  could  be  counted,  cancelled,  and  burned. 
Soon  the  notes  of  only  a  very  small  group  of  banks  in  good  stand- 
ing were  accepted  by  the  public  and  banks  no  longer  paid  local  paper 
over  their  counters.  According  to  the  state  auditor's  reports  of  the 
time,  on  April  1,  1861,  there  were  $11,107,600  in  bank  notes  out- 
standing, while  by  October  1  this  amount  had  been  reduced  to  $3,507,- 
686.  By  that  time  the  number  of  solvent  banks  in  the  state  amounted 
to  only  seventeen  and  in  November  the  auditor  called  on  two  of 
these  to  add  bonds  against  their  outstanding  circulation.  On  Jan- 
uary 1,  1862,  only  three  of  these  banks  had  notes  on  a  par  basis — 
they  alone  were  able  to  comply  with  all  the  requirements  of  the  law. 
In  November,  1860,  there  had  been  one  hundred  and  ten  solvent 
banks  with  a  circulation  of  $12,320,694,  while  just  two  years  later 
the  total  circulation  of  the  state  amounted  to  only  $566,163. 

Many  of  these  difficulties  had  doubtless  been  brought  about  by 
that  original  flaw  in  the  law  which  permitted  circulation  to  be  secured 
by  any  issues  paying  six  per  cent  regularly.  Naturally,  the  banks 
bought  southern  bonds  which  sold  cheaply  and  still  complied  with 
the  legal  requirements.  As  the  war  situation  reduced  the  market 
value  of  some  of  these  to  less  than  half  their  par  value,  it  also  dragged 
down  markets  on  northern  issues  and  those  of  the  United  States 
government  until  in  his  report  to  the  constitutional  convention  of 
1862  the  state  auditor  showed  the  following  prices  to  prevail  for  issues 
of  various  states: 

Vol.  1—8 


166  FINANCING  AN  EMPIRE 

Tennessee 42  per  cent  of  par  value 

Illinois 80  per  cent  of  par  value 

North  Carolina 60  per  cent  of  par  value 

Missouri 42  per  cent  of  par  value 

Georgia • .  .  .  67  per  cent  of  par  value 

Ohio    91   per  cent  of  par  value 

New  York 100  per  cent  of  par  value 

United  States  5s 79  per  cent  of  par  value 

In  spite  of  the  situation,  those  banks  which  liquidated  did  so  in 
such  a  manner  that  they  managed  to  pay  an  average  of  nearly  sixty 
per  cent  on  their  currency  and  the  apparent  loss  to  the  community 
amounted  in  all  to  only  about  three  million  dollars.  The  following 
table  gives  an  interesting  comparison  of  the  securities  held  by  these 
banks  both  before  the  amendment  of  1861  and  after  it  had  gone 
into  effect: 

Official  Statement  of  Illinois  State  Banks  on  November  30, 

1860 

Southern  Securities  Northern  Securities  and  Specie 

Missouri  6s $3,026,000      Ohio  6s $    284,854.96 

Tennessee  6s 3,321,000     Iowa  7s 91,000.00 

Virginia  6s 1,284,000     Michigan  6s 442,000.00 

Louisiana  6s 507,500     Michigan  7s 50,000.00 

North  Carolina  6s.  .       888,000     Minnesota  8s 140,000.00 

South  Carolina  6s. .  .       100,000      New  York  6s 282,000.00 

Georgia  6s 335,000     United  States  5s 19,900.00 

Kentucky  6s 66,000     111.  &  Mich.  Canal.  .  .      531,618.86 

111.  New  Int.  Imp.  Stk.      323,238.27 

Illinois  6s 1,418,000.00 

Specie 42,861.00 

$9,527,500  $4,452,473.09 

Securities  Held  by  Solvent  Banks  in  November,  1862 

Illinois  6s $692,279.52 

United  States  5s 15,000.00 

Ohio  6s 6,000.00 

Missouri  6s 4.000.00 

North  Carolina  6s 2,000.00 


$719,279.52 


(Andreas:     History  of  Chicago,  11:621.) 

By  the  end  of  July  matters  had  begun  to  improve  to  such  an  extent 
that  several  new  banks  were  opened — some  connected  with  leading 


HISTORY  OF  BANKING  IN  ILLINOIS  167 

firms  in  other  states — and  J.  Young  Scammon  had  re-established  the 
business  of  the  old  Marine  bank  which  had  recently  gone  into  liquida- 
tion. E.  I.  Tinkham  was  supplying  Chicago  with  a  clearing  house 
and  produce  men  were  securing  sufficient  accommodations  for  their 
needs  in  the  east. 

In  1861  the  legislature  had  attempted  to  establish  a  new  banking 
law  modeled  on  the  laws  of  Indiana  and  Ohio.  Illinois  seems  to  have 
lost  all  hope  of  a  thorough  reform  of  her  own  free  banking  system 
and  a  few  bankers  urged  that  the  system  of  states  that  had  been  suc- 
cessful be  taken  over  bodily.  In  Indiana  the  state  was  divided  into 
banking  districts  with  all  banks  successfully  controlled  by  one  central 
institution.  In  an  effort  to  imitate  this  system  an  act  was  passed 
on  February  20,  1861,  providing  for  the  "Union  Bank  of  Illinois." 
This  bank  was  to  exist  for  twenty-five  years,  after  its  charter  had 
been  approved  at  the  next  election.  Capital  was  not  to  exceed  ten 
million  dollars  and  each  branch  bank  was  responsible  for  the  debts 
of  every  other  branch.  A  maximum  interest  rate  was  fixed  at  seven 
per  cent.  The  system  was  to  be  known  as  a  "specie  system"  as  op- 
posed to  the  "stock  system"  then  in  use.  Demand  notes  were  to  be 
safeguarded  by  the  single  provision  that  they  should  not  be  issued 
in  excess  of  twice  the  amount  of  paid-in  capital.  (Laws  of  Illinois, 
1861,  p.  53.)  There  was  a  great  deal  of  agitation  against  this  pro- 
posed law  through  the  press.  Editorial  writers  claimed  that  the 
people  of  Illinois  did  not  want  a  bank  such  as  the  state  of  Indiana 
had.  At  least  the  Illinois  law  was  based  on  security  and  not  on  just 
the  ordinary  honesty  and  stability  of  the  men  who  run  banks.  There 
seemed  to  be  no  doubt  on  the  part  of  all  that  the  Illinois  law  was 
not  satisfactory,  but  many  still  believed  that  it  could  be  suitably 
amended.  To  improve  an  existing  system  gradually  seemed  to  them 
to  be  far  better  than  to  upset  even  the  little  that  remained  in  order 
to  establish  an  entirely  new  system. 

When  the  proposed  law  was  put  before  the  people  at  their  general 
election  the  following  November,  business  was  better  than  it  had  been 
for  some  time  and  people  felt  reluctant  to  commit  themselves  any 
further  on  the  subject  of  banking.  Consequently,  the  bill  was  voted 
down.  There  still  remained  a  few  banks  under  old  charters,  but 
their  circulation  was  so  small  as  to  be  negligible. 

The  legislature  of  1859  had  asked  a  referendum  on  the  question 
of  calling  a  convention  to  frame  a  new  state  constitution.  This  was 
voted  for  in  1860,  and  in  August  of  1861  a  convention  for  that  pur- 


168  FINANCING  AN  EMPIRE 

pose  met  at  Springfield.  This  seems  largely  to  have  been  propa- 
ganda on  the  part  of  the  Democrats  who  were  rather  strong  in  the 
state  and  greatly  opposed  to  the  Republicans  who  were  in  power. 
Also  the  Democrats  objected  to  many  of  the  policies  of  President 
Lincoln  and  in  some  way  hoped  to  attain  their  ends  in  this  respect 
through  the  constitutional  convention  of  Illinois.  However,  when 
the  committee  was  appointed  to  make  the  revisions,  it  seemed  to  lose 
courage  and  no  very  sweeping  changes  were  made.  Such  as  were, 
however,  included  an  anti-bank  provision  and  adopted  a  resolution 
instructing  the  state  auditor  in  the  meantime  not  to  issue  circulating 
paper  to  any  but  specie-paying  banks.  The  anti-bank  provision 
stipulated  that  no  bank  was  thereafter  to  be  created  in  the  state — 
nor  was  any  other  institution  of  any  sort  which  might  do  a  banking 
business — and  the  General  Assembly  should  have  no  power  to  pass 
any  laws  whereby  the  charters  even  of  existing  banks  might  be  en- 
larged, extended,  or  renewed;  it  attempted  to  curb  note  issues  by 
providing  that  no  written  or  printed  instrument  for  the  payment  of 
money  on  or  drawn  by  any  banking  corporation  of  a  smaller  de- 
nomination than  ten  dollars  should  be  uttered  or  passed  within  the 
state,  nor  might  that  of  any  denomination  be  uttered  or  passed 
unless  the  bank  on  which  it  was  drawn  redeem  its  circulation  in  gold 
and  silver.  After  1864  this  minimum  note  was  to  be  raised  to  twenty 
dollars  and  in  1866  the  issuing  of  notes  should  stop  entirely.  Mem- 
bers of  the  committee  put  themselves  on  record  as  believing  that  gold 
and  silver,  together  with  the  new  United  States  notes,  would  be 
ample  without  any  local  paper,  and  added  that  patriotism  demanded 
all  local  bank  paper  be  retired  in  favor  of  the  circulation  of  govern- 
ment notes.  To  enforce  the  ruling  about  the  issue  of  private  circula- 
tion, elaborate  punishment  was  provided  for  all  who  should  violate 
the  clause.  The  general  feeling  toward  banks  by  that  time  was  again 
indicated  by  the  vote  cast  on  the  constitution.  While  the  document 
as  a  whole  was  rejected  by  the  people  of  the  state  at  the  special  elec- 
tion held  on  June  17,  1862,  the  section  prohibiting  banks  was  re- 
jected by  a  smaller  majority  than  were  many  other  provisions  of  the 
document. 

After  the  defeat  of  the  measures  for  a  Union  Bank  and  also  for 
the  new  constitution  prohibiting  banking.  Illinois  for  a  time  con- 
tinued with  banking  facilities  so  inadequate  as  to  be  almost  negligible. 
The  various  articles  considered  suitable  for  circulation  as  money  were 
usually  such  as  were   found  on   the  collection  plate  of  a   Wabash 


} 

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(Courtesy    Central   Trust    Company) 

STAGE  COACH  ARRIVING  AT  THE  SHERMAN  HOUSE,  CHICAGO,  ABOUT  1860 


HISTORY  OF  BANKING  IN  ILLINOIS  171 

Avenue,  Chicago,  congregation  on  Thanksgiving  Day,  1862.  The 
list  was  taken  just  as  the  collection  came  from  the  plate  and  con- 
sisted of  the  following: 

1   Two-dollar  bill $■  2.00 

11  One-dollar  bills 11.00 

9  Fifty-cent  postal  currency 4.50 

16  Twenty-five  cent  postal  currency 4.00 

19  Ten-cent  postal  currency 1.90 

16  Five-cent  postal  currency .        .80 

1  Patent  postage  stamp 10 

2  Ten-cent  postage  stamps 20 

3  Five-cent  postage  stamps 15 

25  Three-cent  postage  stamps 75 

12  One-cent  postage  stamps 12 

3  Silver  dimes 30 

5  Silver  half  dimes 25 

2  Three-cent  pieces 06 

9  New  coppers 09 

4  Old  coppers 04 

4  Grain  inspection  tickets 40 

1  Joliet  bank  ticket 25 

4  Walker  omnibus  tickets 20 

25  Chicago  railroad  tickets 8.75 

1  Chicago  railroad  ticket 15 

2  Chicago  railroad  tickets  with  4  holes 20 

2  Chicago  railroad  tickets  with  3  holes 30 

2  Chicago  railroad  tickets  with  2  holes 30 

1  S.  T.  X.  Bitters  ticket 00 

Total $36.81 

The  banking  situation  in  the  west  had  never  been  as  stable  as  in 
the  east — largely  because  bank  managers  in  the  east  exerted  some 
real  effort  toward  eliminating  the  type  of  banker  who  would  take 
advantage  of  flaws  in  banking  laws  so  that  he  might  do  an  unethical 
business  for  his  own  profit.  On  the  whole  the  banking  laws  of  Illi- 
nois probably  had  been  no  worse  than  those  of  many  states  enjoying 
a  widespread  banking  credit.  The  Chicago  Tribune  of  July  3,  1861, 
quoted  an  article  which  had  recently  appeared  in  the  New  York 
Post  and  in  which  comment  was  made  on  the  singular  situation  in 
Illinois — a  state  with  an  actually  sound  financial  system,  doing  busi- 
ness strictly  on  the  sub-treasury  plan,  and  yet  having  a  reckless  and 
pernicious  currency.     According  to  the  Post,  this  situation  explained 


172  FINANCING  AX  EMPIRE 

the  hesitancy  of  the  east  and  other  parts  of  the  country  in  taking 
not  only  the  currency  of  Illinois,  but  also  the  million  dollar  war  loan 
which  she  was  then  trying  to  float.  How,  it  asked,  could  a  state 
with  a  currency  so  rotten  that  -it  would  not  hang  together  for  four 
consecutive  years,  be  relied  upon  to  pay  either  principal  or  interest 
on  a  loan?  Also,  what  could  be  the  financial  stability  of  a  state  which 
had  just  lost  three  to  five  million  in  "wild  cats"?  Could  it  be  trusted 
with  good  money?  Was  it  not  receiving  "shin  plasters"  for  taxes 
along  with  the  other  states  of  the  west? 

Since  southern  exports  were  cut  off,  products  of  the  north  and 
west  had  to  be  substituted  for  them.  In  Illinois  there  was  even  estab- 
lished an  agitation  to  the  end  that  cotton  might  be  produced  in  the 
southern  section.  It  seems  that  years  before  a  cotton  crop  had  been 
tried  in  Illinois  and  found  fairly  successful,  but  as  the  best  grades 
could  not  be  raised  so  far  north,  cotton  was  abandoned  in  the  state 
for  more  profitable  crops.  After  the  outbreak  of  the  war,  new  tests 
were  made  and  the  variety  best  suited  to  the  climate  of  Illinois  se- 
lected. However,  the  farmers  of  the  state  seem  to  have  found  an 
outlet  for  their  patriotism  in  other  ways,  and  it  is  probable  that  no 
very  extensive  harvest  was  ever  secured.  Even  without  the  substitu- 
tion of  cotton,  however,  the  great  demand  for  her  other  products 
made  Illinois  one  of  the  most  wealthy  states  in  the  Union.  This 
situation  is  interesting  in  view  of  the  message  from  the  governor 
dated  some  twenty  years  earlier  in  which  he  said  that  there  was  not 
enough  money  in  the  treasury  to  buy  candles  so  that  the  Assembly 
might  hold  evening  sessions,  and  that  there  were  official  letters  at  the 
post  office  but  no  funds  with  which  to  get  them  out. 

With  the  prosperity  that  came  to  the  state  in  1862  the  courage  of 
bankers  began  to  display  itself  once  more,  and  in  the  last  half  of  that 
year  five  new  banks  were  organized  under  the  general  banking  law 
as  amended  in  1861.  This  somewhat  increased  circulation  in  the 
state  and,  while  it  is  probable  that  these  banks  might  have  done  very 
well  under  the  amended  law  had  times  been  normal  and  the  trial 
given  them  fair,  under  conditions  imposed  by  the  war  it  was  impossible 
for  the  law  to  be  given  a  proper  test.  These  banks  struggled  for  a 
time,  first  competing  with  abnormal  conditions,  then  with  national 
banks,  and  finally,  in  1866  when  a  ten  per  cent  federal  tax  was  put 
on  state  bank  notes,  practically  all  banks  of  issue  found  it  best  either 
to  retire  from  business  entirely  or  to  reorganize  in  a  way  that  would 
conform  with  the  new  law. 


CHAPTER  IX 
ILLINOIS  AXD  THE  XATIOXAL  BANK  ACT 

Support  given  the  War  by  banks  of  Illinois — Condition  of  Federal  finances  at  outbreak 
of  the  War — Need  for  taxation — Flotation  of  state  bonds — Banking  talent  in  Illinois 
— Suspension  of  specie  payments — Wealth  of  Illinois — National  debt  situation — 
Trent  affair — National  loan  from  eastern  banks — Issue  of  "greenbacks" — Contro- 
versy over  "legal  tenders" — Postage  stamp  and  fractional  note  currency — Accept- 
ance of  government  notes  in  Illinois. 

During  the  war  all  the  banks  of  the  state  of  Illinois  were  loyal 
to  the  national  government  and  their  support  of  President  Lincoln 
greatly  encouraged  him  in  his  tremendous  undertaking.  When  the 
call  to  arms  came,  Jacob  Bunn,  X.  H.  Ridgely  and  Company,  and 
the  Marine  and  Fire  Insurance  Bank  of  Springfield  offered  Gov- 
ernor Richard  Yates  one  hundred  thousand  dollars  with  which  to  get 
soldiers  on  the  field.  Shortly  the  banks  of  Chicago  followed  with 
an  offer  of  five  hundred  thousand  dollars  which  was  immediately 
supplemented  by  others  from  business  men  in  all  parts  of  the  state. 

For  the  first  four  months  of  the  war  the  national  government  had 
no  money  to  spend,  nor  had  it  any  sound  financial  policy.  In  July, 
18(51,  Congress  authorized  a  loan  of  $2.50,000,000,  but  failed  to  pass 
a  satisfactory  tax  law  which  might  give  those  supporting  the  loan 
some  hope  of  its  ever  being  paid  off.  Consequently  the  bonds  found 
no  ready  market.  Enormous  purchases  had  to  be  made,  however, 
so  Congress  authorized  expenditure  after  expenditure  and  loan  after 
loan,  little  troubling  itself  over  the  manner  in  which  all  this  money 
could  be  secured.  To  conduct  the  war  at  all,  it  became  necessary  for 
states,  cities,  banks,  and  individuals  to  step  forward  with  required 
funds  until  in  four  months'  time  more  than  one  hundred  million 
dollars  had  been  advanced  so  that  sufficient  troops  might  be  set  afoot. 
At  its  next  meeting  Congress  sanctioned  and  legalized  these  expendi- 
tures and  voted  for  many  more  similar  ones,  but  did  nothing  to  pro- 
vide the  necessary  taxation  with  which  to  repay  these  debts  and  meet 

173 


174  FINANCING  AN  EMPIRE 

the  new  ones  authorized.  During  the  first  year  of  the  war  the  gov- 
ernment spent  money  at  the  rate  of  $2,200,000  a  day  without  levying 
a  single  dollar  of  tax.  (Hunt's  Merchants'  Magazine,  Vol.  46, 
March,  1862,  p.  582.) 

In  Illinois  the  General  Assembly's  committee  on  finance  offered 
a  bill  for  the  issuing  of  bonds  to  provide  funds  for  the  militia.  The 
market  at  the  time  was  so  flooded  with  similar  securities  that  it  was 
deemed  best  to  put  out  only  $250,000  of  the  new  issue  and  that  in 
one  hundred  dollar  denominations  bearing  six  per  cent  and  to  be 
sold  only  within  the  state.  The  bill  provided  for  an  issue  of  two 
million  in  all,  but  such  great  care  had  to  be  exercised  in  marketing 
these  securities  in  order  to  avoid  selling  them  at  a  discount  that  it 
was  impossible  to  issue  them  all  at  one  time.  By  1863  the  state  debt 
report  showed  that  Illinois  had  issued  war  bonds  to  an  amount  of 
$2,050,000  and,  when  toward  the  end  of  1865,  a  bill  was  introduced 
into  the  House  of  Representatives  to  reimburse  the  loyal  states  that 
had  advanced  a  total  of  $467,954,346  to  support  the  war,  it  was  re- 
vealed that  of  this  amount  Illinois  had  contributed  thirty  million 
dollars.  Only  the  states  of  Massachusetts,  New  York,  Pennsylvania, 
and  Ohio  had  given  more  out  of  a  total  of  twenty-two  states  to  whom 
such  reimbursements  were  voted.  This  amount,  however,  was  only  a 
portion  of  that  actually  provided,  as  large  sums  were  also  spent  in  the 
form  of  bounties  to  encourage  enlisting  and  thereby  avoid  conscrip- 
tion. 

During  the  war  financing  period,  Illinois  was  especially  fortunate 
in  having  some  of  the  most  capable  banking  talent  of  the  country  at 
her  command.  Chicago  was  already  reaching  that  place  where  she 
was  becoming  a  financial  center  for  the  west  and  early  in  the  sixties 
banks  were  to  be  established  there  under  the  management  of  such 
men  as  Chauncey  B.  Blair,  William  F.  Coolbaugh,  Solomon  A. 
Smith,  Samuel  M.  Nickerson,  George  Sturges,  Henry  F.  Eames, 
John  DeKoven,  Lyman  J.  Gage,  Isaac  G.  Lombard,  and  Orson 
Smith,  all  of  whose  names  were  to  be  respectfully  known  to  the  finan- 
cial world  of  the  future. 

In  addition  to  these,  a  number  of  northerners,  who  had  been  trans- 
acting business  in  the  South  or  in  border  states,  moved  into  Chicago 
upon  the  declaration  of  hostilities.  Among  these  men  President  Lin- 
coln sought  material  for  bringing  about  a  lasting  peace  by  tactfully 
welding  the  sympathies  of  North  and  South  as  soon  as  the  war  had 
ended.     The  President  was  a  man  of  such  broad  vision  that  he  set 


£J>ixst^4^-^<s    --tu^    to    a^£^j    t^r££*6  a^Stw 


(Courtesy  A.  S.  liailgen 


HISTORY  OF  BANKING  IN  ILLINOIS  177 

about  this  task  shortly  after  the  war  began.  Among  the  men  he 
chose  to  handle  the  financial  affairs  of  the  government  in  dealing  with 
the  South  was  A.  C.  Badger  who  for  many  years  had  been  a  partner 
in  the  banking  house  of  A.  D.  Hunt  and  Company  of  Louisville. 
Mr.  Badger  and  his  family  moved  to  Chicago  in  I860,  where  he  im- 
mediately established  a  banking  house  that  subsequently  became  one 
of  the  largest  in  the  city.  President  Lincoln  chose  A.  C.  Badger 
because  he  combined  an  intense  loyalty  to  the  Union  with  a  deep 
sympathy  for  the  South  whose  people  he  had  served  for  many  years 
and  among  whom  he  was  highly  respected. 

Mr.  Lincoln's  plans  in  this,  as  in  other  respects,  were  never  car- 
ried out,  defeated  by  the  President's  untimely  death  which  consti- 
tuted a  calamity  of  greatest  magnitude  to  the  South.  Had  the 
President  lived,  his  tactful  ways  of  overcoming  the  differences  be- 
tween the  two  sections  of.  the  country  in  all  probability  would  have 
made  the  United  States  a  Union  in  sympathy  as  well  as  in  fact  many 
years  before  that  state  of  affairs  was  actually  brought  about. 

Until  shortly  after  the  outbreak  of  the  war  the  supply  of  specie 
received  by  the  banks  of  the  country  had  come  largely  from  Europe, 
but  since  large  exports  of  cotton,  tobacco,  lumber,  and  other  similar 
kindred  products  were  cut  off  from  the  south,  by  1802  specie  was 
returning  to  Europe  even  faster  than  it  could  be  supplied  by  the 
fields  of  California.  A  part  of  this  vast  amount  of  gold  which  went 
to  Europe,  in  spite  of  the  fact  that  there  was  a  premium  upon  it, 
was  for  the  payment  of  interest  due  on  government  and  other  bor- 
rowings abroad,  and  part  of  it  went  for  the  purchase  of  needed  sup- 
plies. 

With  money  flowing  away  from  the  country  and  the  chief  source  of 
credit  abroad  cut  off,  it  did  not  take  long  after  the  fall  of  Fort 
Sumter  for  a  general  depression  of  business  in  all  lines  to  set  in. 
Banks  in  the  west  failed  for  lack  of  ready  cash  and  those  in  the 
east  because  they  dared  not  trust  such  specie  as  they  did  have  out 
of  their  vaults.  By  the  end  of  the  year  1861  the  banks  of  New  York 
found  that  they  must  suspend  all  specie  payments  and  urged  that 
the  remainder  of  the  country  support  their  decision  by  doing  like- 
wise. For  a  time  the  west  held  out  against  such  a  plan.  In  Indiana 
bankers  conceived  the  idea  that  if  only  they  could  continue  to  pay  off 
their  notes  for  a  while,  confidence  would  be  restored  and  the  notes 
would  no  longer  be  presented  for  payment.  Therefore,  they  cornered 
what  they  considered  to  be  a  sufficient  amount  of  specie,  but  the  end 


178  FINANCING  AN  EMPIRE 

to  the  demand  for  it  never  came  and  specie  payments  were  suspended 
generally. 

Since  the  banks  of  the  west  performed  practically  no  functions 
except  that  of  issuing  notes,  it  .naturally  followed  that  once  specie 
payments  were  discontinued  and  the  notes  discredited,  there  could  be 
no  further  banking  business.  Even  by  the  middle  of  January,  1862, 
things  had  reached  such  a  condition  that  the  Chicago  Tribune  com- 
mented on  the  state  of  puzzlement  the  bankers  were  in.  There  was 
then  no  way  of  knowing  how  to  make  loans  on  satisfactory  terms; 
if  currency  were  taken,  would  the  lender  be  willing  to  accept  currency 
thirty  or  sixty  days  hence?  Generally  he  was  of  the  opinion  that  he 
would  not  be  willing  to  receive  currency  at  that  distant  date  and, 
as  a  result,  few  loans  could  be  made.  By  this  time  currency  in  Illi- 
nois consisted  chiefly  of  the  currencies  of  other  states,  a  small  amount 
of  greenbacks,  and  such  few  Illinois  bank  notes  as  had  not  yet  suc- 
cumbed to  the  difficulties  of  the  times.  The  suspension  of  specie 
payments  in  New  York  at  the  beginning  of  1862,  and  the  subsequent 
deluge  of  state  bank  bills,  soon  forced  the  few  available  greenbacks 
out  of  circulation  and  for  three  years  bankers  passed  out  the  bills 
of  other  states,  without  assuming  any  responsibility  for  them,  so  long 
as  anybody  could  be  found  to  accept  such  paper. 

Even  by  the  time  of  the  outbreak  of  the  Civil  war  Illinois  had 
grown  to  be  a  state  of  great  wealth.  From  1825  on  through  the  year 
1860  the  rate  of  taxation  remained  at  6.7  mills  on  the  dollar.  In 
1851  the  revenue  tax  was  five  cents  on  the  one  hundred  dollars.  The 
school  and  interest  taxes  were  each  twenty  cents  on  the  one  hundred 
dollars,  making  a  total  of  forty-five  cents  on  each  one  hundred  dol- 
lars. According  to  tax  figures,  however,  the  valuation  of  property 
for  tax  purposes  was  not  such  that  taxes  could  constitute  any  burden. 
In  1860  the  state  auditor's  report  showed  a  property  value  of  only 
$367,227,742,  while  the  census  placed  the  true  value  of  property 
in  the  state  at  $871,860,232.  In  accordance  with  the  prevailing  spirit 
of  the  new  country,  taxes  had  been  consistently  held  down  and,  when 
existing  laws  regulating  them  automatically  increased  the  rate,  prop- 
erty values  were  nominally  diminished  until  the  desired  result  had 
again  been  attained.  This  situation,  which  prevailed  generally 
throughout  the  country,  greatly  added  to  the  difficulties  found  in 
financing  the  war. 

It  was  partly  as  a  result  of  this  taxation  policy  which  was  gen- 
erally in  existence  in  one  form  or  another,  that  the  financial  crisis  of 


HISTORY  OF  BANKING  IN  ILLINOIS  179 

1861  settled  on  the  whole  country.  As  now  viewed  in  perspective  it 
seems  plainly  not  to  have  been  due  so  much  to  a  bad  money  situa- 
tion, many  as  were  its  faults,  as  to  lack  of  public  confidence,  both  in 
the  ultimate  success  of  the  war  and  the  ability  of  the  government 
to  pay  off  the  debts  it  was  contracting.  The  national  credit,  like 
that  of  many  of  the  states,  was  greatly  injured  in  this  time  of  great 
need  simply  because  the  imposition  of  a  suitable  tax  was  delayed 
from  one  legislative  session  to  the  next.  Since  Congress  did  not  im- 
pose this  tax  and  there  was  no  basis  on  which  to  found  a  hope  for 
the  future  payment  of  loans,  it  naturally  followed  that  war  issues, 
either  state  or  national,  could  not  readily  be  floated.  The  situation 
may  be  more  clearly  understood  when  we  realize  that  at  the  time 
of  the  flotation  of  the  first  war  bonds  by  the  government,  only  a 
quarter  of  the  country's  expenditures  were  expected  to  come  from 
taxes.  The  resulting  lack  of  confidence  was  far  reaching,  for  bank 
customers,  fearing  to  trust  their  investment  funds  to  government 
bonds  and  knowing  the  pressure  being  made  on  the  banks,  withdrew 
specie  from  their  deposits  and  hoarded  it  rather  than  permit  war  loan 
investments  to  be  made  with  their  funds  even  indirectly. 

The  banks  of  the  country  by  the  beginning  of  the  year  1862  had 
only  $87,000,000  in  specie  to  meet  debts  of  $459,000,000 — a  currency 
basis  far  too  inadequate  for  war  needs.  To  add  still  further  to  the 
already  existing  lack  of  confidence,  there  next  occurred  the  Trent 
affair  which,  for  a  time,  brought  about  a  situation  in  which  war  with 
England  seemed  pending. 

It  appears  that  Messrs.  Mason  and  Slidell,  one  time  Senators  of 
the  United  States  but  now  turned  traitors,  were  arrested  while  on 
their  way  to  Europe  on  board  the  steamship  Trent,  an  English  mer- 
chant vessel.  The  arrest  was  made  by  the  captain  of  a  United  States 
ship,  a  public  armed  vessel.  Mason  and  Slidell  were  removed  from 
the  Trent  as  contraband  of  war  and  the  vessel  then  allowed  to  so  on 
its  way.  England,  to  be  sure,  had  violated  her  neutrality  in  permit- 
ting such  traitors  to  travel  on  her  ships,  but  she  contended  that 
men  could  not  constitute  contraband  and  that  the  captain  of  the  San 
Jaconto,  therefore,  had  no  right  to  remove  them.  International  law 
and  custom  seemed  rather  to  favor  the  English  standpoint  in  the 
matter  and  for  a  time  the  situation  for  America  looked  grave  indeed. 

In  August,  1861,  Secretary  Chase  of  the  Treasury,  a  "hard 
money"  Democrat  trained  under  Jackson,  asked  a  loan  of  the  Asso- 
ciated Banks  of  Xew  York.    At  the  outbreak  of  the  war  these  banks 


180  FINANCING  AX  EMPIRE 

had  united  to  pool  their  specie,  in  the  hope  that  they  might  thus  be 
able  to  tide  over  the  crisis.  The  Secretary  now  wished  to  secure  all 
this  specie  for  the  use  of  the  government  and  as  much  more  as  could 
be  secured.  Therefore,  in  his  organization  for  the  first  loan  he  added 
the  banks  of  Boston  and  Philadelphia  to  the  Associated  Banks  of 
Xew  York,  and  together  these  three  cities  were  to  give  the  Treasury 
$150,000,000  payable  in  specie  in  three  installments.  The  banks,  in 
return,  were  to  receive  7.30  per  cent  treasury  notes  maturing  in 
three  years  which  they  were  to  sell  to  the  general  public  in  order  to 
finance  the  loan. 

Although  the  one  hundred  and  fifty  million  which  these  bankers 
agreed  to  contribute  to  government  expenditures  was  some  two  and 
one-half  times  the  actual  amount  of  specie  available  to  them,  they 
presumed  that  the  Secretary  would  permit  them  to  give  the  govern- 
ment credit  for  the  amount  of  the  loan  and  that  he  would  withdraw 
actual  specie  only  as  it  was  needed.  If  such  were  the  case,  the  loaned 
specie  should,  in  the  course  of  business,  flow  back  into  the  banks  at 
a  rate  sufficient  to  meet  subsequent  withdrawals.  However,  in  mak- 
ing these  plans  the  bankers  had  not  reckoned  with  the  fact  that 
Secretary  Chase  was  a  "hard  money"  Democrat.  As  soon  as  the  first 
installment  of  the  loan  fell  due  the  Secretary  delivered  the  treasury 
notes  and  demanded  payment  in  specie  in  full.  Almost  immediately 
the  Trent  affair  occurred  and  other  political  complications  arose  so 
that  security  prices  dropped  and  the  treasury  notes  could  not  be  sold 
at  home  or  abroad  in  sufficient  quantities  to  uphold  the  banks  in  their 
efforts  to  supply  the  government.  Still  the  banks  hoped  that  before 
the  second  installment  was  due  the  Treasury  enough  specie  from 
the  first  would  have  found  its  way  back  to  make  the  new  shipment 
possible. 

Meantime  Secretary  Chase  had  issued  demand  notes— "green- 
backs"— which  were  accepted  as  legal  tender  for  payment  of  public 
dues.  At  first  he  issued  them  in  sparing  amounts,  as  was  consistent 
with  his  "hard  money"  policy,  but  Treasury  needs  rapidly  became 
so  great  that  his  own  scruples  in  the  matter  had  to  be  discarded  and 
the  notes  issued  in  quantities  sufficiently  generous  to  cover  the  appro- 
priations made  by  Congress.  These  "greenbacks"  gained  so  wide  a 
circulation  that  soon  they,  instead  of  the  hoped-for  specie,  were  pour- 
ing into  the  banks.  Still  further  to  increase  existing  difficulties, 
country  banks,  fearing  suspension  of  specie  payments,  kept  such 
supplies  as  came  to  them  in  their  own  vaults  instead  of  shipping  them 


HISTORY  OF  BANKING  IN  ILLINOIS  181 

on  to  New  York  as  had  been  their  custom.  In  some  way  the  banks 
did  manage  to  meet  the  second  installment  on  their  loan,  but  by  the 
time  the  third  was  due  demand  notes  were  so  generally  in  circulation 
that  specie  could  not  be  found  and  the  last  installment  had  to  be 
paid  in  large  part  in  the  new  demand  notes. 

Having  thus  paid  off  their  obligation  to  the  Treasury,  many  of 
these  banks  now  refused  to  receive  any  more  of  the  treasury  demand 
notes  for  deposit.  In  Boston,  for  instance,  the  charters  refused 
hankers  the  right  to  pay  out  any  but  their  own  notes.  In  New  York 
the  banks  continued  to  pay  off  their  notes  in  specie  as  long  as  possible 
because  under  the  New  York  law,  if  a  note  were  protested,  the  bank 
refusing  specie  on  it  must  go  into  liquidation  and  wind  up  its  busi- 
ness. New  York  banks  for  some  time  met  this  difficult  situation  by 
not  paying  out  any  of  their  own  notes,  and  soon  currency  there  became 
government  notes  and  certified  checks.  Because  Boston  and  other 
cities,  however,  were  rejecting  the  government  notes,  they  soon  fell 
below  par  and  then  in  New  York  certified  checks  became  the  only 
currency.  Even  with  all  these  devices  for  avoiding  the  use  of  specie, 
by  the  end  of  the  year  the  banks  of  New  York  encountered  a  condi- 
tion where  they  could  not  pay  such  demands  as  came  to  them,  and  in 
December,  1861,  specie  payments  were  suspended.  After  that  the 
government  could  not  pay  its  creditors  in  coin,  and  so  the  whole 
country  under  a  "hard  money"  secretary  had  to  go  on  a  paper  basis 
where  it  remained  for  the  next  seventeen  years. 

In  Illinois  the  state  treasurer,  acting  under  a  clause  of  the  state 
constitution,  refused  to  accept  the  new  demand  notes  in  payment  of 
taxes.  The  case  was  carried  to  the  Illinois  supreme  court  where,  in 
spite  of  vigorous  protest,  the  action  of  the  treasurer  was  upheld  as 
being  in  accord  with  the  instructions  given  him  by  the  constitution 
of  the  state. 

It  now  became  necessary  for  the  Secretary  of  the  Treasury  to 
look  about  for  some  way  in  which  to  finance  further  the  enormous 
expenditures  which  Congress  was  so  readily  approving,  and  this 
search  brought  him  to  a  realization  of  the  fact  that  the  one  hundred 
and  fifty  million  dollars  in  circulating  notes  which  were  afloat  in  the 
loyal  states  were  in  reality  only  a  loan  without  interest  from  the 
people  to  the  banks.  He  decided  that,  so  long  as  the  people  of  the 
country  seemed  willing  to  make  loans  under  such  conditions,  they 
might  far  better  give  the  Union  the  benefit  of  their  funds  and  thereby 
let  the  government,  which  represented  the  interests   of  the  whole 


182  FINANCING  AX  EMPIRE 

people  instead  of  only  the  stockholders  in  the  banks,  be  made  richer. 
Therefore,  early  in  the  war  the  secretary  began  urging  a  national 
currency. 

By  January,  1862,  he  had  so  greatly  underestimated  the  expenses 
of  the  country  and  the  extent  of  the  war  that,  to  compensate  for  the 
growing  shortage  of  funds,  he  caused  a  bill  to  be  introduced  authoriz- 
ing the  issue  of  one  hundred  million  dollars  of  treasury  notes  and 
to  fund  the  outstanding  debt  and  floating  debt  by  the  issue  of  five 
hundred  million  in  bonds.      This  bill  provided  that  the  emergency 
currency  should  bear  on  its  back  the  words:     "The  within  note  is  a 
legal  tender  in  payment  of  all  debts,  public  and  private,  and  is  ex- 
changeable  for  bonds   of   the  United   States   bearing  six  per  cent 
interest."    Because  of  these  printed  words,  the  proposed  bill  met  with 
volleys  of  controversy.     The  country  had  been  through  too  many 
financial  difficulties  with  paper  issues  to  give  its  people  any  desire 
for  a  governmental  currency  based  on  anything  except  gold  as  a 
legal  tender.     But,  much  as  was  said  against  the  bill,  those  for  it 
came  back  always  with  the  same  weak  but  urgent  argument — the 
country  needed  money  and,  for  the  present  at  least,  there  was  no 
other  way  in  which  it  could  be  secured  in  sufficient  amount  to  meet 
disbursements.     Although  no  better  argument  than  this  could  be 
brought  forth  in  behalf  of  the  proposed  issue  of  notes,  the  bill  was 
approved  on  February  25,  1862,  with  the  proviso  that  the  Secretary 
of  the  Treasury  might  issue  the  notes  to  an  amount  of  one  hundred 
and  fifty  million  dollars,  payable  to  the  bearer  and  carrying  no  in- 
terest,  in   whatever   denominations — not  less  than  five  dollars — he 
thought  best.     Fifty  million  of  these  new  notes  were  to  replace  the 
"demand  notes"  issued  under  an  act  of  July  18,  1861,  and  the  latter 
taken  up  as  rapidly  as  possible.     A  limit  was  set  on  the  circulation, 
however,  by  the  provision  that  not  at  any  time  might  the  sum  of 
new  and  old  notes  outstanding  together  amount  to  more  than  one 
hundred  and  fifty  million  dollars.     The  legal  tender  clause  persisted 
throughout  the  hot  arguments,  but  finally  it  was  altered  to  read: 
"Receivable  in  payment  of  all  taxes,  internal  duties,  excises,  debts, 
and  demands  of  every  kind  due  to  the  United  States,  except  duties 
on  imports,  and  of  all  claims  and  demands  against  the  United  States 
of  every  kind  whatsoever,  except  for  interest  upon  bonds  and  notes, 
which  shall  be  paid  in  coin,  and  shall  also  be  lawful  money  and  a 
legal  tender  in  payment  of  all  debts,  public  and  private,  within  the 
United  States,  except  duties  on  imports  and  interest  as  aforesaid." 


GOVERNOR    RICHARD    YATES— 1861-1865 


•  From  Andreas'  History  of  Chicago) 

CHICAGO:     LA   SALLE  STREET   FROM   THE   COURTHOUSE    ABOUT   THE   TTME   OF 

THE  CIVIL  WAR 


HISTORY  OF  BANKING  IN  ILLINOIS  185 

These  notes  were  to  be  exchangeable  for  the  six  per  cent  bonds  of 
the  government  which  had  been  issued  to  the- banks  of  New  York, 
Boston,  and  Philadelphia  for  the  first  war  loan,  and  were  also  to  be 
received  at  par  the  same  as  coin  for  any  future  loans  negotiated  by 
the  Secretary  of  the  Treasury. 

On  July  11,  1862,  an  additional  issue  of  one  hundred  and  fifty 
million  of  these  "legal  tenders"  was  authorized  in  denominations 
which  might  be  as  low  as  one  dollar  with  not  more  than  thirty-five 
million  dollars'  worth  in  denominations  of  less  than  five  dollars.  On 
January  3  and  March  3,  1863,  two  acts  together  authorized  a  third 
one  hundred  and  fifty  million  which,  with  re-issues  authorized  from 
time  to  time,  made  a  total  of  $1,640,5.59,947.  (R.  A.  Bayley:  Na- 
tional Loans  of  the  United  States — Washington,  1881,  p.  80.) 

To  give  the  government  also  the  advantage  of  such  money  as 
circulated  in  the  form  of  small  change,  an  act  was  passed  which  pro- 
hibited all  banks  and  individuals  from  issuing  any  kind  of  tokens 
or  other  evidences  of  a  circulating  medium  in  amounts  of  less  than 
one  dollar  after  August  1,  1862.  In  place  of  such  currency  the  gov- 
ernment proposed  to  issue  postage  stamps  which  were  to  pass  as 
small  change  and  be  accepted  in  exchange  for  currency  of  a  higher 
denomination.  The  following  March  3  this  act  was  changed  to  pro- 
vide  that,  instead  of  postage  stamps,  the  Secretary  of  the  Treasury 
might  issue  fractional  notes  in  whatever  form  he  thought  best  and 
that  these  notes  were  to  be  receivable  in  sums  of  not  less  than  three 
dollars  for  postage  and  revenue  stamps  and  of  not  less  than  five 
dollars  in  payment  of  dues  to  the  United  States — except  duties  on 
imports.  The  entire  amount  of  such  fractional  currency  issued,  in- 
cluding postage  and  revenue  stamps,  was  not  to  exceed  fifty  million 
dollars. 

All  of  the  government  notes  met  with  great  favor  in  Illinois.  They 
represented  a  currency  recognized  every  where  and  accepted.  If  only 
such  notes  could  be  secured  in  sufficient  quantity,  there  need  be  no 
more  trouble  with  the  doubtful  and  possibly  counterfeit  issues  of 
other  states.  Since  Illinois  had  practically  no  currency  of  her  own, 
she  was  more  than  ever  in  a  position  to  support  the  issues  of  the 
government.  The  people  of  the  state  loyally  believed  that  such  of 
the  banks  as  had  reorganized  under  the  amended  banking  law  of 
1861  and  were  then  redeeming  their  currency  at  Chicago  or  Spring- 
field, were  the  soundest  in  the  country,  founded  as  they  Mere  on  a 
basis  such  as  few  others  could  boast;  but  even  the  most  optimistic 


186  FINANCING  AN  EMPIRE 

had  to  admit  that  from  the  standpoint  of  both  security  and  conven- 
ience, the  notes  of  the  United  States  Treasury  were  preferable  to 
those  of  Illinois  banks.  For  a  long  time,  however,  government  notes 
circulated  in  quantities  too  small  to  supply  all  the  currency  needs 
of  Illinois  and  so  they  had  to  be  supplemented  both  by  the  Illinois 
bank  currency  which  was  trusted,  and  that  of  other  banks  not  in  such 
high  favor.  This  situation  prevailed  so  generally  throughout  the 
northwest  that  constant  urgings  for  more  treasury  notes  came  from 
that  section.  From  there,  too,  came  the  suggestion  that  all  banks  of 
issue  be  taxed — even  as  much  as  ten  per  cent  on  circulation — so  that 
treasury  notes  might  soon  become  the  established  currency  of  the 
nation.  In  Illinois  the  conception  of  the  place  the  government  should 
assume  in  the  finances  of  the  nation  went  even  further  than  this  and 
early  in  1862  we  find  her  newspapers  urging  the  creation  of  a  na- 
tional bank  of  issue  not  far  different  from  the  one  which  eventually 
became  established.  To  hasten  further  the  circulation  of  government 
paper,  the  people  of  Illinois — through  the  press — -expressed  their  wil- 
lingness to  forward  all  the  supplies  the  government  might  need  and 
in  return  accept  treasury  notes  as  payment.  Were  other  states  to  do 
the  same,  they  urged,  it  would  not  take  long  to  establish  this  single 
currency  to  the  great  benefit  of  both  the  government  and  commerce. 


CHAPTER  X 
NATIONAL  BANKING 

Early  plans  for  a  bond-secured  national  currency — National  Bank  Act  developed  by 
Secretary  Chase  and  Jay  Cooke — Opposition  to  the  National  Bank  Act — Its  adoption 
— Organization  of  first  national  banks — Circulation  tax  and  end  of  state  banks  of 
issue — Effect  of  national  currency  on  business — Chicago's  panic  of  1864 — Jay 
Cooke's  success  with  Government  bonds — Railroads — Canal  revival — Boom  of  1865 
— Organization  of  the  Chicago  Clearing  House  Association — Discontinuance  of 
warehouse  receipts  as  currency — First  bankers'  convention  in  Chicago — Incorpora- 
tion of  private  banks  in  Illinois — Growing  opposition  to  the  National  Bank  Act — 
Agitation  for  an  inflated  currency — Retirement  of  "greenbacks" — Resumption  of 
specie  payments  in  1879 — State  charters  for  banks  in  Illinois — Constitution  of  1870 
with  its  provision  against  banks. 

With  so  much  agitation  for  a  national  currency  and  national 
banking  system  coming  from  the  west,  Secretary  of  the  Treasury 
Chase  in  his  report  to  Congress  at  the  beginning  of  its  session  in 
1862  proposed  a  plan  which  lie  believed  would  obviate  the  defects 
of  the  system  of  state  bank  issues  and  at  the  same  time  give  much 
needed  financial  aid  to  the  government.  The  Secretary's  first  plan 
involved  these  three  points:  1.  Circulation  of  notes  issued  by  a 
common  authority  and  bearing  a  common  impression.  2.  Redemption 
of  these  notes  by  institutions  to  which  they  were  delivered  for  issue. 
3.  Redemption  secured  by  pledge  of  United  States  stocks  and  ade- 
quate specie. 

It  was  the  Secretary's  original  idea  that  all  of  the  banking  capital 
of  the  states  be  invested  in  United  States  issues  as  security  for  a 
uniform  circulation.  In  no  way  was  it  his  first  intention  that  a  na- 
tional bank  replace  those  institutions  already  in  operation.  After  all, 
the  National  Bank  Act  was  meant  to  be  only  a  war  measure  whereby 
the  Treasury  might  be  replenished.  It  is  not  likely  that  the  govern- 
ment was  then  greatly  concerned  beyond  that  with  the  financial  wel- 
fare of  the  country.  That  it  did  offer  a  uniform  currency  for  the 
benefit  of  all  was  due  to  good  fortune  rather  than  wise  planning. 
However,  after  more  thought  was  given  to  the  matter,  the  Secre- 

187 


188  FINANCING  AN  EMPIRE 

tary,  together  with  Jay  Cooke,  a  New  York  banker  of  great  promi- 
nence who  had  succeeded  in  disposing  of  large  blocks  of  government 
bonds  after  the  Treasury  and  the  banks  had  failed  to  sell  them,  went 
to  Congress  with  the  suggestion  that  a  banking  system  be  made 
possible  which  would  provide  a  uniform  currency — uniformly  well- 
secured  and  safeguarded  against  depreciation — a  means  of  eliminat- 
ing losses  from  discounts  and  high  rates  of  domestic  exchange,  a 
stimulation  of  the  demand  for  government  securities,  a  means  of 
lightening  taxes  through  lowering  interest  rates  and  sharing  the 
profits  from  note  circulation;  and  at  the  same  time  this  system  should 
be  so  constituted  that  the  risks  incident  to  a  great  money  monopoly 
be  avoided.  It  was  suggested  that  the  new  currency  be  uniform  in 
design,  prepared  by  the  government,  and  based  on  the  security  of 
government  bonds.  In  fact,  this  suggested  bill  was  based  in  large 
measure  on  the  free  banking  laws  then  existing  in  a  number  of 
states,  including  Illinois.  Its  chief  difference  from  the  free  banking 
laws  of  the  states  was  that,  while  the  states  assumed  no  responsibility 
for  the  payment  of  the  notes  of  their  banks,  the  national  government 
would.  After  much  controversy,  and  with  the  aid  of  Cooke's  able 
advertising,  the  act  was  introduced,  passed  Congress,  and  on  Feb- 
ruary 25,  1862,  it  received  the  signature  of  President  Lincoln. 

Such  opposition  as  met  the  National  Bank  Act  came  chiefly  from 
those  sections  of  the  country  which  had  going  banking  systems  of 
their  own  established.  They  raised  one  cry  after  another  in  an  effort 
to  prevent  the  new  national  banks  from  putting  the  established  insti- 
tutions out  of  business.  A  uniform  currency  in  all  parts  of  the 
country,  they  said,  was  not  possible;  not  a  made-to-order  system,  but 
one  which  had  grown  with  the  needs  of  a  community  was  best.  Dif- 
ferent communities  could  not  possibly  use  the  same  financial  system. 
Why  substitute  a  new  paper  currency  for  those  already  in  existence? 
How  could  a  currency  be  uniform  when  it  was  to  be  redeemed  in 
only  one  place;  would  not  this  fact  make  it  sell  at  all  maimer  of  dis- 
counts, depending  on  the  distance  from  the  point  of  redemption '. 
These  and  many  other  objections  were  raised,  but  in  Illinois — a  state 
where  banks  were  practically  out  of  existence — only  praise  could 
be  found  for  the  new  system.  Here  people  wanted  and  sadly  needed 
a  currency  system  which  would  make  possible  a  suitable  medium  of 
exchange  between  Illinois  and  the  east.  While  bankers  and  others 
in  the  state  realized  that  the  new  act  was  far  from  perfect  as  first 
presented,  their  opinion  was  that  it  had  best  be  adopted  and  such 


LYMAN  J.  GAGE 

First    president    of    the    Chicago     Clearing 

House   Association    and   later   president 

of    the    First    National    Bank. 


SALMON  P.  CHASE 

Secretary    of    the    Treasury,    who    originated 

the  National  Bank  Svstem 


JAY  COOKE 
Financier  of  the  Civil  War 


HISTORY  OF  BANKING  IN  ILLINOIS  191 

changes  as  might  prove  necessary  be  made  later.  Better,  they  said, 
have  an  imperfect  banking  system  of  the  right  kind  than  risk  con- 
tinuing with  none  at  all. 

Within  a  year  after  passing  the  National  Bank  Act  on  March  25, 
1863,  the  west  had  become  determined  to  eliminate  all  "wild  cat" 
issues  in  favor  of  those  backed  by  the  government.  Those  state  and 
private  banks  in  operation  strenuously  objected  to  this  attitude. 
They  had  all  their  capital  tied  up  in  currency  issues  and  as  these  lost 
favor  it  was  plain  that  ruin  must  befall  those  bankers  who  were  not 
in  a  position  to  resort  to  other  branches  of  the  banking  business. 
In  spite  of  their  fears,  the  new  currency  was  so  gradually  introduced 
and  business  men,  sensible  to  impending  dangers,  so  carefully  aided 
the  changing  situation  that  soon  the  poor  money  had  been  abolished 
quite  without  disaster,  and  by  the  end  of  1864  business  was  being 
done  for  the  first  time  with  a  currency  which  had  a  uniform  value  in 
all  parts  of  the  country. 

Even  so,  it  was  a  long  time  before  all  objections  on  the  part  of 
state  banks  quieted  down.  Nor  is  this  to  be  wondered  at,  since  these 
institutions  were  finding  a  profitable  source  of  income  in  their  note 
issuing  powers.  The  opposition  was  strongest  in  those  sections  where 
state  banks  were  strongest.  In  the  east,  particularly,  did  the  new 
banking  system  find  great  difficulty  in  establishing  itself.  To  save 
the  reputation  of  his  section  of  the  country,  Jay  Cooke  of  Phila- 
delphia, by  dint  of  supplying  ninety  per  cent  of  the  capital,  succeeded 
in  securing  the  first  charter  issued  to  any  national  bank  for  the  First 
National  of  Philadelphia.  By  October  first,  almost  seven  months 
after  the  Act  was  passed,  only  sixty-six  national  banks  had  been 
organized  in  the  whole  country.  The  active  banking  centers  of  the 
east  would  not  have  them  and,  while  the  new  institutions  were  more 
than  welcome  in  the  west,  the  finances  of  that  section  were  in  such  a 
state  that  new  banking  projects  could  not  be  undertaken  with  all 
the  speed  desirable.  The  small  towns  of  the  west  were  particularly 
friendly  to  national  banks  and  for  a  time  most  of  the  charters  were 
issued  to  such  places.  In  Illinois,  seven  "First  National  Banks"  were 
organized  in  the  year  1863.  The  fact  that  they  all  carried  the  same 
title  was  due  to  a  requirement  of  the  law,  later  adjusted  to  the  con- 
venience of  those  banks  which  had  established  names  of  great  value 
to  themselves  in  their  communities.  At  first,  however,  it  was  the 
intention  that  every  national  bank  should  carry  a  number  showing 
the  order  in  which  it  had  been  established  in  its  community. 


192  FINANCING  AX  EMPIRE 

When  the  Comptroller  of  the  Currency  made  his  first  report  in 
November,  1863,  he  showed  that  one  hundred  and  thirty-four  national 
banks  had  been  organized  in  the  whole  country — fourteen  in  Newr 
England,  sixteen  in  New  York,'  twenty  in  Pennsylvania,  twenty  in 
Indiana,  thirty-eight  in  Ohio,  seven  in  Illinois,  six  in  Iowa,  and  four 
each  in  Michigan  and  Wisconsin.  When  one  realizes  that  then, 
even  more  than  now,  the  finances  of  the  country  were  centered  in  the 
east,  and  also  takes  into  consideration  the  fact  that  Indiana  and  Ohio 
had  the  best  banking  systems  of  the  west  while  Illinois  had  prac- 
tically none  at  all,  the  seven  banks  established  in  this  state  indicate  a 
wholesome  and  encouraging  support  of  the  efforts  of  the  Treasury 
Department. 

On  January  1,  1864,  there  were  one  hundred  and  thirtv-nine  na- 
tional  banks  in  the  country,  seventy-nine  of  which  were  in  the  states 
of  Ohio,  Indiana,  Michigan,  Iowa,  Wisconsin,  and  Illinois.  By 
June,  1864,  Illinois  had  twenty-eight  of  the  banks  and  only  five  other 
states — New  York,  Pennsylvania,  Indiana,  Ohio,  and  Massachusetts 
-  then  had  a  larger  number.  Between  June  30  and  August  31  of 
that  year  national  banking  capital  in  Illinois  increased  from  $2,828,36,5 
to  $1,007,900.  By  the  end  of  November,  186.5,  Illinois  had  thirty- 
eight  national  banks  with  a  capital  stock  of  $4,147,837.25  and  a  cir- 
culation of  $3,396,560  in  national  currency.  (Hunt's  Merchant's 
Magazine,  vol.  52,  Jan.,  1865,  p.  67.) 

While  the  bank  at  Philadelphia  owned  by  Jay  Cooke  received 
charter  number  one,  probably  the  first  bank  actually  to  open  for 
business  under  a  national  charter  was  one  which,  because  of  its  pro- 
pinquity, was  a  factor  in  the  finances  of  Illinois — the  First  National 
Bank  of  Davenport,  Iowa.  This  bank's  actual  charter  number  was 
fifteen.  It  did  not  make  application  until  May  29,  1863,  for  the 
charter  received  on  June  24.  The  doors  were  opened  on  June  29, 
1863. 

Except  for  a  delay  in  the  office  of  the  Comptroller,  in  all  proba- 
bility the  honor  of  having  the  first  national  bank  doing  business  in, 
the  country  would  have  gone  to  Chicago.  A  group  of  business  men 
there  made  application  some  time  in  May,  1863,  with  the  expectation 
that  their  bank  could  open  for  business  on  June  1.  However,  the 
Comptroller  of  the  Currency  was  busy  about  other  matters  and  per- 
mitted applications  to  accumulate  on  his  desk  so  that  it  was  not  until 
toward  the  end  of  June  that  he  considered  them  and  then  signed  all 
at  one  time.    From  this  lottery  the  First  National  Bank  of  Chicago 


HISTORY  OF  BANKING  IN  ILLINOIS  193 

drew  charter  number  eight.  Whether  or  not  it  might  have  had  an 
earlier  number  than  that,  except  for  the  delay-  on  the  part  of  the 
Comptroller,  is  a  question  which  probably  never  will  be  settled.  Im- 
mediately uj)on  receipt  of  the  long  delayed  charter  the  officers  of  this 
new  bank  made  arrangements  to  open  the  First  National  of  Chicago 
on  July  1.  As  the  bank  at  Davenport  had  started  two  days  previous, 
Chicago's  bank  was  the  second  in  the  country  to  open  its  doors.  The 
Philadelphia  bank,  carrying  charter  number  one,  did  not  begin  busi- 
ness until  July  11,  1863. 

By  the  time  the  National  Banking  Act  was  one  year  old,  five 
banks  had  been  established  in  Chicago  alone.  Among  these  were  the 
First  National,  still  in  existence  and  now  one  of  the  larger  banks  of 
the  country;  the  Fifth  National,  which  later  became  the  National 
Bank  of  America;  and  the  Northwestern  National.  These  last  two 
later  merged  to  form  the  Corn  Exchange  National  which  was  one  of 
the  prominent  banking  institutions  of  the  middle  west  until  its  merger 
in  1924  with  the  Illinois  Merchants  Trust  Company.  In  the  state 
of  Illinois  as  a  whole  seven  national  banks  were  established  in  1863, 
thirtv-one  in  1864,  fortv-one  in  1863,  and  three  in  1866,  making  a 
total  up  to  that  time  of  eighty-two  banks  in  the  state.  These,  to- 
gether with  their  charter  numbers  were  as  follows: 

National  Banks  Established  in  Illinois  Duking  the  Years 

1863,  1864  and  1865 

Charter 

Number     Town  Bank  Capital  President  Cashier 

1863 

8  Chicago— First   National    $000,000     Edmund    Aiken Edward   E.   Braisted 

33  Cairo— First   National    50,000     John  W.  Trover Daniel  Hurd 

38  Aurora— First    National    50,000     John  Van   Nbrtwick Ira  H.  Fitch 

85  Monmouth — First    National    50,000     John   Brown William   M.  Gregg 

108  Rock  Island— First  National 100,000     Philemon  L.  Mitchell James  M.  But'ord 

113  Danville— First  National   50,000     Joseph  G.  English Eben  H.  Palmer 

114  La  Salle — First  National 50,000     George  A.  Butler E.  F.  Nexsen 

1864 

160  Moline— First   National    50,000     Jerman  S.  Keator John  M.  Gould 

176  Peoria— First   National    150,000     Tobias  S.  Bradlev Nathaniel  B.  Curtiss 

177  Wilmington— First   National    ...  50,000     A.  J.   Mclntvre.' James   Whitten 

205  Springfield— First   National   125,000     John  Williams George  A.  Black 

207  Peoria— Second  National 200,000     Lewis  Howell Tohn  Boyd  Smith 

225  Chicago— Second  National 100,000     J.  Alder  Ellis Edward  I.'Tinkham 

236  Chicago — Third  National 120,000     James  H.   Bowen Ira   Holmes 

241  Galesburg— First  National    100,000     Charles  H.  Mathews Eugene  L.  Chapman 

276  Chicago — Fourth    National    100,000     Benjamin  Lombard Samuel  A.  Briggs 

319  Freeport— First   National    50,000  George  F.   DeForest Esrom   Maver 

320  Chicago— Fifth  National    100,000  Josiah  Lombard Isaac  G.  Lombard 

339     Batavia— First  National    100,000  William  Coffin Henrv  C.  Paddock 

347     Lacon— First  National    50,000  Phineas   Stevens Charles  T.   Ecklev 

372     Woodstock— First  National    50,000  Lawrence  S.  Church Cyrus  B.  Durfe'e 

385     Freeport— Second   National    50,000  John  H.  Addams Alexander  H.  Stone 


194 


FINANCING  AN  EMPIRE 


National  Banks  Established  in  Illinois  During  the 

and  1865 — Continued 


Years 


1863,  1864 

Charter 

Number     Town  Bank                        Capital 

409     Mt.    Carroll— First   National 50,000 

415     Canton— First  National   50,000 

424     Quincy— First  National    100,000 

429     Rockford— First  National 50,000 

441     Peru— First  National   50,000 

466  Chicago — Mechanic's    National...    250,000 

477     Decatur— First  National   50,000 

479     Rockford— Third   National    70,000 

482     Rockford— Second  National   50,000 

491  Galesburg — Second  National  ....     60,000 

495     Warsaw — First  National   100,000 

508  Chicago— Northwestern  National.  500,000 

511  Jacksonville— First  National  ... .    100.000 

512  Joliet— First  National    100,000 

531  Morris — Grundy   County    Nat'l..     50,000 

534     Geneseo— First'  National    100,000 


President  Cashier 

James   Marks Henry  A.  Mills 

James  H.  McCall Charles  T.  Heald 

Caleb  M.  Pomeroy Uri  S.  Penfield 

Alonzo  Wood Edward  H.  Griggs 

Theron  D.  Brewster.  .  .Robert  V.  Sutherland 

J.  Y.   Scammon Carl  F.  W.  Junge 

Thomas  O.  Smith Theodore  W.  Freese 

A.  C.  Spafford William  T.  Wallace 

Robert  P.  Lane G.  A.  Sanford 

David  Sanborn Albert  C.  Reed 

William  Hill Charles  H.  Mellen 

Buckingham   Sturges George  Sturges 

Stephen  Dunlap Hiram  Wilson 

George  Woodruff Fred  A.  Woodruff 

Charles  H.  Goold David  D.  Spencer 

Andrew  Crawford Charles  Perry 


642  Chicago — Merchant's    National    . 

698     Chicago — Union   National   

703  Quincy — Mer.  &  Farmers  Nat'l . . 

713  Chicago — Commercial   National.. 

724  Chicago — Manufacturer's   Nat'l.  . 

759     Knoxville — First  National   

763     Charleston— First    National    

785     Cairo— City  National    

818  Chicago— City  National   

819  Bloomington — The  Nat'l   Bank.. 

827     Galva— First  National    

831     Galena — First  National    

849  Warren — Farmer's  National  .... 

883  Rockford — Winnebago   National. 

902  Dixon — Lee  County  National .... 

903  Princeton — First   National    

913  Champaign — First  National  .... 

915  Shawneetown — First  National   . . 

945     Waukegan — First  National 

966  Chicago — Trader's  National    .... 

967  Macomb — First  National   

979  Galena — Merchant's     National... 

1001     Centralia— First  National    

1024     Mattoon— First  National   

1033     Morrison — First   National    

1042     Pittsfield— First    National    

1097     Belvidere— First    National    

1117  Peoria — Mechanic's   National    ... 

1154     Ottawa— First  National 

1167  Carthage — National   Bank   of 

Hancock  Co 

1177     Mendota— First    National    

1365     Elgin— First   National    

1428     Alton— Alton  National   

1445     Alton — First  National    

1453     Rushville— First  National   

1465  Ottawa— National  City  Bank.  . .  . 

1471  Virginia — Farmer's   National    .  .  . 

1482     Henry— First  National   

1484  Winchester — First  National    .... 

1517  Yandalia— Nat'l  Bk.  of  Vandalia 

1555     Paris — First   National    


1865 

450,000  Chauncev  B.  Blair Henry   R.  Svmonds 

500,000  William 'F.  Coolbaugh Charles  J.  Connell 

150,000  Lorenzo  Bull Charles  H.  Bull 

200.000  Peter  R.  Westfall Charles  Ennis 

225.000  William  H.  Brown David  J.  Lake 

60,000  Cornelius  Runkle John  Babbington 

60,000  Charles  W.  Morton Henry  C.  Clement 

100,000  William  P.  Halliday Alfred  D.  Safford 

250,000  Asa  D.  Reed * Albert  C.  Reed 

150,000  James  H   Robinson Edward  Thorp 

50,000  William  L.  Wiley Lewis  W.  Beck 

125,000  Robert    H.    McClellan None 

50,000  Manley  Rogers Junius  Rogers 

100,000  Thomas  D.  Robertson Spencer  Rising 

100  000  Joseph  Crawford Samuel  C.  Eells 

70,000  Benjamin  S.  Ferris Henry  W.  Rawson 

65,000  John  H.  Thomas James  S.  Wright 

200,000  John  McKee  Peeples. .  .Thomas  S.  Ridgwav 

50.000  Charles  R.  Steele Tames  C.  Biddecom 

100,000  Joseph  O.  Rutter Thomas  P.  Tallman 

50,000  Charles   Chandler Tesse   H.  dimming? 

125,000  Augustus  Esty William  H.  Snyder 

80,000  Alexander  D.  *Hav Ferdinand  Kohl 

100,000  Charles  M.  Dole.  *. Tohn  W.  True 

50  000  Lander  Smith Albert  J.  Jackson 

50,000  Chauncev  L.  Higbee Clark  P.  Chapman 

100,000  Allen  C.  Fuller Newell  C.  Tomkins 

100,000  Isaac  Underbill Samuel  Coskery 

100,000  William  Hickling William  H.  Cushman 

50,000  Hiram  G.  Ferris Edward  Cherrill 

65,000  Edwin  A.  Bowen Elisha  W.  Fassett 

100,000  Benjamin  F.  Lawrence Morris  C.  Town- 

100,000  Ebe'nezer  Marsh Charles  A.  Caldwell 

100,000  Isaac  Scaritt Daniel  D.  Ryrie 

65.000  William   H.  Ray Augustus  Warren 

100,000  Henry  F.  Fames Edwin  C.  Allen 

50,000  Samuel  S.  Vance John  H.  Wood 

50,000  Thomas  L.  Davis William  T.  Law 

50,000  George  W.  Ritchey John  Moses 

50,000  Nathaniel  M.  McCurdv Joshua  Lazarus 

100,000  Alfred  Anstell ' William  H.  Tuller 


1866 

1637     Pekin — First  National    100,000     Isaac  E.  Leonard Benjamin  F.  Blossom 

1641     Olnev-  First   National    100,000     Henrv  Spring ' A.  Darling 

1662     Springfield— Ridgelv   National...  200,000     X.   H.  Ridgely William  Ridgely 


HISTORY  OF  BANKING  IN  ILLINOIS  195 

As  early  as  1856  James  Guthrie,  then  Secretary  of  the  Treasury, 
felt  that  it  might  soon  become  necessary  to  put  -a  prohibitive  tax  on 
small  notes.  This  became  more  and  more  desirable  and  in  1860  there 
arose  an  urgent  demand  in  the  west  that  especially  the  depreciated 
state  bank  currencies  be  taxed  out  of  existence.  By  1864  the  strain 
of  war  had  made  such  a  measure  necessary  and,  on  March  3,  1865, 
Congress  helped  to  boost  the  state  banks  out  of  existence  by  impos- 
ing a  tax  of  ten  per  cent  on  their  notes.  This  tax  was  to  go  into  effect 
after  July  1,  1866,  and,  as  it  would  then  mean  an  end  to  the  only 
existing  function  of  state  banks,  there  soon  developed  a  great  increase 
in  the  number  of  state  banks  which  applied  for  national  charters. 
By  autumn  of  1865  the  number  of  national  banks  in  the  country  as 
a  whole  had  become  almost  as  great  as  that  of  banks  of  all  kinds  in 
the  country  in  1860.  This  fact  is  significant  when  one  realizes  that, 
while  in  1860  banks  in  all  sections  of  the  country  were  included,  the 
national  banks  of  1865  were  confined  to  northern  states. 

In  spite  of  a  general  fear  for  the  outcome  of  putting  the  estab- 
lished state  banks  out  of  business,  the  transformation  came  about 
without  any  great  business  derangement.  Once  the  banks  realized 
that  they  could  secure  larger  profits  by  going  into  the  broader  bank- 
ing field  offered  under  the  national  law,  and  were  also  faced  with 
the  fact  that  unless  they  took  this  way  out  they  must  lose  such  busi- 
ness as  they  already  had,  they  were  ready  to  make  the  adjustment  in 
the  best  possible  way;  as  a  result,  even  the  volume  of  bank  note  cir- 
culation was  not  essentially  affected.  In  this  adjustment  the  banks 
enlarged  upon  that  portion  of  their  business  which  had  been  so  greatly 
neglected  before — deposits,  loans,  and  discounts.  This  development 
had  begun  before  the  tax  on  circulation  was  imposed;  even  as  early 
as  the  spring  of  1862  the  flow  of  greenbacks  into  Illinois  had  had  a 
marked  effect  on  the  circulation  of  other  notes  as  it  also  had  on 
general  business.  This  influx  of  new  money  had  a  tendency  to  in- 
crease prices  which  dull  times  of  the  winter  before  had  greatly  de- 
pressed. Soon  prosperity  seemed  to  prevail  and  with  it  there  arose  a 
demand  for  small  change.  Although  the  government  had  previously 
attempted  to  meet  this  need  and  at  the  same  time  gain  some  advantage 
for  itself  by  issuing  the  fractional  note  currency,  this  did  little  good 
in  Illinois  as  its  distribution  was  most  inefficiently  managed  and  the 
only  way  bankers  could  get  a  supply  at  all  adequate  was  by  per- 
suading their  senators  to  secure  it  for  them. 


196  FINANCING  AN  EMPIRE 

Shortly  after  this  .seeming  prosperity  had  set  in,  greenbacks  began 
to  depreciate,  gold  and  silver  went  out  of  circulation,  and  prices  con- 
tinued to  soar.  For  a  time  this  brought  great  discomfort,  particu- 
larly to  the  farmers,  who  suffered  because  of  the  wide  difference 
between  the  high  prices  at  which  they  were  required  to  buy  their 
supplies  and  the  very  low  prices  at  which  their  products  were  still 
selling.  Within  two  years,  however,  wheat  had  gone  to  more  than 
two  dollars  a  bushel  and  other  agricultural  products  were  selling  at 
like  figures.  By  that  time  gold  was  api:>roaching  a  point  where  it 
took  two  hundred  and  fifty  dollars  in  greenbacks  to  buy  one  hundred 
dollars  in  gold  and  this  situation  was  to  be  relieved  only  by  the  close 
of  the  war. 

Although  the  new  banking  act  had  been  established  primarily  as 
a  war  measure  and  for  the  purpose  of  financing  the  operations  of 
the  Union  in  her  struggle  with  the  southern  states  which  had  at- 
tempted to  secede,  the  system  became  a  disappointment  from  that 
angle.     It  did  not  make  the  market  for  government  bonds  that  had 
been  hoped  for,  but  it  did  give  the  commerce  of  the  country  even 
more  than  had  been  dreamed  of.     At  last,  instead  of  the  issues  of 
sixteen  hundred  banks,  there  was  a  uniform  currency  issue  which 
could  be  depended  upon.     According  to  available  statistics  in  1862 
there  had  been  a  state  bank  note  circulation  of  $167,000,000.     Only 
nine  states  then  required  bond  security  for  their  circulation  and  the 
securities  so  pledged  amounted  to  but  forty  million  dollars,  leaving 
more  than  one  hundred  and  twenty  million  cared  for  by  other  assets 
or  none  at  all.     From  the  sixteen  hundred  banks,  seven  thousand  dif- 
ferent kinds  of  notes  had  circulated.    Three  thousand  kinds  of  altered 
notes  were  estimated  to  be  afloat.     Seventeen  hundred  varieties  of 
spurious  notes  were  found  and  eight  hundred  varieties  of  imitations. 
This  made  a  total  of  more  than  fifty-five  hundred  kinds  of  fraudulent 
notes.     It  was  said  that  in  1862  only  two  hundred  and  fifty-three 
banks  in  the  entire  country  were  issuing  notes  which  had  not  been 
altered  or  imitated.     With  such  figures  representing  the  country  as 
a  whole,  one  can  see  that,  in  spite  of  all  the  bad  banking  Illinois 
had  endured,  her  system  after  all  was  comparatively  well  planned. 
According  to  the  reports  of  the  state  auditor,  there  were  twenty- 
three  state  banks  in  operation  in  Illinois  at  the  end  of  1864.     These 
had  deposited  approximately  one-quarter  million  of  Illinois  securities 
with  the  state  auditor  to  secure  a  circulation  of  some  two  hundred 
thousand.     By  the  following  January  1,  because  of  the  bill  taxing 


HISTORY  OF  BANKING  IN  ILLINOIS  197 

circulation,  this  had  been  reduced  to  $132,436  secured  by  Illinois  six 
per  cent  bonds  in  amount  of  $175,000. 

Toward  the  end  of  September,  1864,  a  local  financial  flurry  oc- 
curred in  Chicago  in  which  some  small  banks  and  also  the  Marine 
and  Fire  Insurance  Company  failed.  This  reduced  state  banks  in 
Chicago  to  two  engaged  in  commercial  banking — the  Merchants  Sav- 
ings, Loan  and  Trust  Company,  and  the  Marine  Company — the 
Marine  Bank  reorganized.  Also,  it  left  two  savings  banks — the  State 
Savings  Institution,  and  the  Merchants,  Farmers  and  Mechanics 
Bank.  Prosperity  soon  returned  and  with  the  national  banks  fur- 
nishing all  the  currency  needed  for  business,  it  remained  unbroken 
until  the  time  of  the  great  fire  in  1871. 

On  the  whole  the  history  of  banking  in  the  state  was  uneventful 
between  these  years,  as  the  national  banking  system  had  put  a  stop 
to  all  other  banks  of  issue  and,  as  the  transition  from  the  state  to 
the  national  system  took  place  in  an  orderly  and  more  or  less  un- 
eventful manner,  trade  and  the  new  system  of  banks  grew  up  side 
by  side. 

The  chief  financial  problem  of  Illinois  now  dealt  not  so  much 
with  her  own  affairs  as  with  her  part  in  assisting  the  Union  in  its 
tremendous  task  of  financing  the  war.  Because  America  had  not  yet 
fully  established  a  sound  and  efficient  system  of  finance,  as  a  nation 
she  was  not  in  a  position  to  establish  stability  of  character  at  home 
or  command  respect  abroad.  The  notes  and  other  securities  of  the 
government  issued  for  the  payment  of  war  debts,  lacking  that  proper 
backing  which  comes  from  a  sound  tax  system,  could  command  con- 
fidence nowhere.  While  the  authorities  were  seeking  a  way  of  back- 
ing these  obligations  with  specie,  an  adequate  tax  levied  for  their  sup- 
port would  doubtless  have  kept  them  at  par,  but  it  was  not  until  1863 
that  those  in  a  position  to  do  so  saw  sufficient  value  in  taxation  to  levy 
the  first  federal  income  tax  in  America. 

Because  of  the  situation,  which  rendered  the  issues  of  the  govern- 
ment so  little  worthy  of  confidence,  the  banks  of  the  country  failed 
miserably  in  placing  government  loans  in  adequate  amounts,  and  it 
was  not  until  Jay  Cooke,  the  Philadelphia  banker,  took  charge  that 
these  securities  could  be  sold  with  any  degree  of  success.  Through 
clever  advertising,  on  which  he  spent  some  ten  thousand  dollars  of 
his  own  fortune,  Mr.  Cooke  managed  to  float  the  first  issue  of  "Seven- 
Thirties."  Of  the  first  series  of  notes  issued  in  August  of  1861,  Mr. 
Cooke  sold  $4,224,0.50  and  took  one  million  of  the  second  fiftv  million 

Vol.  1—7 


198  FINANCING  AN  EMPIRE 

lot  which  was  issued  on  the  next  October  1.  For  this  work  he  received 
a  commission  of  $6,680.06  and  an  allowance  of  $1.50  for  advertising. 
He  spent  all  of  this,  in  addition  to  his  own  ten  thousand  dollars,  on 
these  securities. 

After  he  had  thus  shown  his  ability  to  float  a  loan  under  condi- 
tions which  had  caused  all  others  to  fail  in  the  attempt,  Mr.  Cooke 
was  officially  put  in  charge  of  subsequent  loan  sales.  In  1863  he  sent 
Thomas  F.  Shewell  into  Illinois  as  his  representative  to  take  sub- 
scriptions on  the  six  per  cent  loan  called  the  "Five-Twenties."  Mr. 
Shewell  conferred  with  bankers,  brokers,  and  editors,  distributed 
posters,  and  posted  bills  in  public  places  in  behalf  of  the  loan,  every- 
where meeting  with  success  in  his  efforts  to  secure  cooperation  in  the 
state.  Later  a  man  named  Gallaway  who  traveled  the  west,  reported 
that  the  National  Bank  of  Galena  had  sold  $266,000  in  government 
bonds  in  six  weeks'  time,  all  to  farmers  and  mechanics  of  small  means. 
A  little  agency  established  at  Havana,  Illinois,  received  subscrip- 
tions amounting  to  more  than  three  thousand  dollars  in  less  than 
three  hours  after  it  was  first  opened  for  business.  In  Wilmington 
there  lived  an  old  woman  who  had  been  an  apparently  destitute  widow 
for  many  years.  She  lived  very  poorly  and  worked  very  hard,  but 
even  she  appeared  at  the  bank  and,  taking  an  old  silk  handkerchief 
from  under  her  shawl,  produced  therefrom  twelve  hundred  dollars  in 
bills  which  had  been  hidden  away  for  so  long  that  they  had  become 
musty  and  were  in  such  a  state  that  the  clerk  could  scarcely  count  the 
money.  Her  case  was  merely  typical  of  the  extent  to  which  the 
people  of  Illinois  came  forward  with  their  offers  of  financial  help  to 
the  Union.  It  is  even  said  that  under  the  urge  of  Jay  Cooke's 
advertising  and  in  their  intense  anxiety  to  support  the  government, 
men  and  women  would  walk  from  twenty  to  sixty  miles  to  the  nearest 
agencv  to  buv  United  States  bonds. 

Shortly  after  the  outbreak  of  the  war  it  was  discovered  that 
greater  facilities  for  railroad  transportation  must  be  secured,  and  as 
a  result  rather  extensive  railroad  developments  began  to  take  place 
in  the  west.  President  Lincoln  constantly  urged  that  this  work  be 
pushed  for  there  were  great  gaps  where  transportation  was  sorely 
needed.  In  some  cases  there  were  loyal  regions  on  the  border-line 
between  north  and  south  which  had  no  connection  with  the  Union  by 
rail.  Hunt's  Merchants'  Magazine  for  January.  1862,  in  comment- 
ing on  the  situation,  complimented  the  progress  the  west  was  making 
in  this  regard  and  said  in  part: 


HISTORY  OF  BANKING  IX  ILLINOIS  199 

"An  unusual  feat  in  railroad  transportation  was  lately  accom- 
plished on  some  western  roads,  viz:  the  Third  Michigan  Regiment. 
Colonel  Kellogg  traveled  the  entire  distance  from  Grand  Rapids, 
Michigan,  to  Alton,  Illinois,  a  distance  of  seven  hundred  and  fifty 
miles,  without  change  of  cars.  This  was  over  the  following  routes: 
the  Detroit  and  Milwaukee  from  Grand  Rapids  to  Detroit;  thence  to 
Adrian  by  the  Detroit  and  Toledo;  thence  to  Chicago  by  the  Michi- 
gan Southern;  thence  to  Mattoon  by  the  Illinois  Central;  thence  to 
Alton  by  the  Terre  Haute  and  Alton  Road." 

About  this  time,  either  from  a  sincere  desire  to  facilitate  the 
progress  of  the  war,  or  simply  because  the  periodic  revival  of  such 
agitation  was  about  due,  a  clamor  once  more  arose  for  the  continued 
development  of  the  Illinois  and  Michigan  Canal.  It  was  pointed  out 
that  the  canal,  if  properly  developed,  would  permit  the  transporta- 
tion of  war  vessels  down  the  Illinois  and  Rock  rivers  to  the  Missis- 
sippi, and  that  through  it  the  entire  fleet  could  be  transported  from 
the  lakes  to  the  Mississippi  and  thence  to  the  Gulf  of  Mexico  and 
the  ocean.  Ingenious  promoters  of  the  project  further  urged  that 
in  the  event  of  a  war  with  England  the  entire  navy  of  the  country 
could  be  placed  on  the  Great  Lakes  if  needed  there.  With  these 
excellent  excuses  at  hand,  the  proposition  was  actually  placed  before 
Congress  in  February,  1862,  as  a  war  measure.  The  bill  provided 
that  the  canal  be  220  miles  long,  have  seven  locks  and  dams,  that  it 
be  160  feet  wide  and  seven  feet  deep.  The  cost,  as  estimated,  would 
be  $13,346,824.  This  would  enable  two  hundred  transports  to  be 
placed  at  Cairo  in  a  week's  time,  tugs  could  be  transformed  into  gun 
boats,  and  nearly  the  entire  marine  of  the  lakes  transferred  to  the 
Mississippi.  Despite  all  the  enthusiasm  and  fine  arguments  that 
could  be  raised,  congressmen  from  the  east  were  not  persuaded  that 
it  was  to  their  advantage  to  vote  such  a  quantity  of  national  funds  to 
the  use  of  Illinois,  and  the  bill  was  killed. 

The  war,  by  I860,  had  reached  that  stage  where  demand  for  goods 
from  the  west  was  very  active,  and  business  boomed  in  and  about 
Chicago.  The  only  real  effect  on  the  banks  was  to  bring  about 
the  organization  of  new  national  banks  at  a  comparatively  rapid  rate. 
In  Chicago  it  was  found  that  a  clearing  house  would  greatly  facilitate 
financial  transactions,  so  under  the  agitation  created  by  George 
Sturges  of  the  Northwestern  National  Bank,  one  was  established  in 
that  year.  To  hasten  the  day  on  which  the  organization  might  get 
under  way,  Mr.  Sturges  gave  space  in  the  offices  of  his  bank  where 


200  FINANCING  AX  EMPIRE 

exchanges  Mere  made  until  a  suitable  room  for  the  clearing  house 
might  be  found.  The  organization  was  re-established  as  a  private 
institution  in  1870  and  in  1882  was  incorporated  under  the  laws 
of  the  state. 

By  the  end  of  1866  there  were  reported  eighty-two  national  banks 
as  having  been  established  in  Illinois.  Of  these  only  three  had  opened 
for  business  in  the  year  1866  and  up  to  this  time  no  national  bank  had 
gone  out  of  operation  in  the  state,  although  a  number  had  gone  into 
liquidation  in  other  states.  These  eighty-two  banks  now  had  a  paid- 
in  capital  stock  of  $1 1,570,000  with  bonds  deposited  amounting  to 
$10,818,400  against  a  circulation  of  $9,448,415.  (Bankers'  Maga- 
zine, January,  1867.) 

During  this  year  the  commercial  and  banking  interests  of  the  state 
were  greatly  embarrassed  by  a  decision  of  the  supreme  court  whereby 
warehouse  receipts  were  no  longer  allowed  as  negotiable.  Until  now 
bey  had  passed  the  same  as  bank  notes  or  any  other  current  paper, 
but  this  decision  required  that  the  transfer  of  grain  or  other  property 
in  warehouses  must  actually  be  made  or  the  transaction  could  legally 
convey  no  responsibility.  (Bankers'  Magazine,  January,  1867,  p. 
556.) 

The  only  other  occurrence  of  real  financial  import  in  1866  seems 
to  have  been  the  meeting  of  what  was  probably  the  first  bankers'  con- 
vention to  be  held  in  the  state  of  Illinois.  This  was  a  largely  attended 
meeting  of  the  officers  and  managers  of  national  banks,  chiefly  of 
the  northwest.  It  was  held  in  Chicago  on  September  12,  1866.  for 
the  purpose  of  finding  a  way  to  defeat  legislation  then  pending 
whereby,  it  was  feared,  Congress  might  make  New  York,  Boston,  and 
Philadelphia  the  only  points  at  which  national  bank  notes  could  be 
redeemed.  The  bankers  of  the  west  felt  that  something  must  be 
done  to  defeat  such  a  measure,  since  it  must  of  necessity  withdraw 
a  large  amount  of  circulating  money  from  the  west  where  it  was  so 
much  needed  for  the  development  of  commerce.  Sixty-six  presidents 
and  cashiers  were  in  attendance  at  the  meeting  who  represented  banks 
in  the  states  of  Illinois,  Iowa,  Wisconsin,  Indiana.  Michigan.  Mis- 
souri, and  Minnesota;  one  banker  from  Louisiana  attended  the  con- 
vention. 

Although  the  first  bankers'  convention  held  in  Chicago,  this  was 
not  the  first  at  which  western  bankers  were  in  attendance.  According 
to  the  Chicago  Tribune  of  October  19,  1864,  there  was  a  similar  meet- 
ing held  in  New  York  in  the  autumn  of  1864  at  which  bankers  from 


HISTORY  OF  BANKING  IN  ILLINOIS  201 

fifteen  states  were  present,  among  them  a  number  from  the  west. 
At  this  meeting,  Edmund  Aiken,  first  president  of1  the  First  National 
Bank  of  Chicago,  was  elected  a  vice-president  of  the  association  of 
hankers. 

In  order  to  assist  the  United  States  government  in  establishing  a 
uniform  national  currency,  the  state  legislature  of  1867  passed  laws 
prohibiting  the  further  incorporation  of  banks  of  issue,  or  the  issuing 
of  notes  by  private  firms  or  individuals.  This  was  not  a  measure  of 
any  widespread  consequence  at  the  time  as,  for  practical  purposes, 
there  was  really  no  state  currency  in  Illinois.  Of  the  one  hundred 
and  ten  state  banks  in  operation  in  1860  at  the  outbreak  of  the  war, 
only  sixty-two  were  left  in  1862,  and  two  years  later  only  twenty- 
three  had  survived.  Those  still  remaining  were  rapidly  being  taxed 
out  of  business  by  the  federal  tax  on  issues  of  state  banks. 

In  order  to  assist  such  banks  as  had  not  yet  retired  all  of  their 
own  circulation,  the  legislature  provided  that  all  state  banks  still 
having  securities  with  the  state  auditor  might  file  a  bond  for  the 
redemption  of  their  outstanding  circulation.  This  was  to  be  sub- 
mitted to  the  governor,  the  state  auditor,  and  the  state  treasurer 
for  approval  and  then  the  banks  might  recover  their  securities.  Since 
the  amount  of  circulation  of  this  kind  was  then  negligible,  the  law 
could  be  enacted  in  this  form  with  safety.  At  the  same  time  the 
legislature  of  1867  passed  a  number  of  acts  incorporating  private 
banks,  but  each  institution  so  authorized  represented  a  savings  bank 
or  a  loan  and  trust  company  and  all  powers  of  issue  were  denied 
them.  In  1869  under  these  private  charters  sixty-nine  banks  were 
incorporated  with  all  the  ordinary  banking  powrers  except  that  of  the 
issue  of  notes  for  circulation.  All  of  them  were  incorporated  under 
the  name  of  loan  companies. 

Meantime  the  growth  of  national  banks  in  the  state  had  been 
steady,  but  partly  because  of  the  high  minimum  capital  requirement 
of  fifty  thousand  dollars — an  amount  too  large  for  the  smaller  towns 
—this  growth  was  rather  slow.  The  political  situation  in  Illinois, 
also,  was  not  so  conducive  to  the  encouragement  of  national  banks  as 
in  those  states  which  passed  enabling  acts  to  lessen  the  difficulties  of 
transition  from  state  or  private  to  national  banking  institutions. 

As  is  to  be  expected  in  the  case  of  any  movement  of  fundamental 
import,  before  long  the  opposition  to  national  banks  invaded  even  the 
precincts  of  loyal  Illinois.  There  grew  up  a  faction  in  the  state  which 
favored  the  issue  of  paper  money  directly  by  the  government.    This 


202  FINANCING  AN  EMPIRE 

group,  which  termed  itself  a  "convention  of  citizens  of  Illinois,"  held 
a  meeting  in  Ottawa  on  September  9,  1867,  for  the  purpose  of  urging 
issue  of  paper  money  and  also  the  repeal  of  the  National  Bank  Act. 
Shortly  before  similar  resolutions  had  been  passed  by  the  Democratic 
convention  in  the  congressional  district  in  the  southern  section  of  the 
state  centering  about  Cairo  and  similar  sentiments  were  brought 
out  at  the  Springfield  convention  on  September  14,  1870.  This  dis- 
content grew  in  large  part  out  of  the  economic  unrest  following  the 
war  and  which  was  particularly  strong  in  the  west,  affecting  more 
and  more  the  political  life  of  that  section  of  the  country. 

Since  the  currency  question  was  one  which  could  be  admirably 
suited  to  political  controversy,  it  was  not  long  before  it  had  developed 
to  interesting  proportions.  Even  as  early  as  1865  the  U.  S.  Treasury 
had  begun  to  retire  greenbacks,  which  represented  a  portion  of  the 
war  debt,  in  favor  of  long-time  bonds.  In  thus  disposing  of  a  de- 
preciated paper  currency,  the  government  could  rapidly  return  to  a 
sound  credit  basis.  However,  the  soundness  of  national  credit  little 
concerned  states  in  which  depreciated  greenbacks  represented  almost 
the  only  circulating  medium,  as  was  the  case  in  Illinois.  Whenever 
any  of  this  paper  money  was  withdrawn  to  be  exchanged  for  govern- 
ment bonds  there  was  just  that  much  less  circulating  in  the  country, 
and  the  ever  present  fear  lest  the  volume  of  money  be  reduced  below 
business  needs  increased. 

In  the  face  of  this  situation,  it  was  not  so  hard  for  those  politically 
interested  to  persuade  whole  communities  that  not  national  credit 
stability  but  currency  inflation  was  the  crying  need  of  the  day.  Soon 
so  many  of  these  treasury  notes  had  been  withdrawn  as  to  increase 
the  market  value  of  the  greenback  dollar  which,  in  turn,  brought 
about  a  drop  in  the  money  price  of  all  other  products.  In  spite  of  her 
war  prosperity,  the  west  was  still  a  debtor  country  so  that  the  creditor 
east  was  pleased  at  the  prospect  of  an  appreciated  dollar  and  naturally 
did  all  possible  to  aid  in  the  country's  rapid  return  to  a  sound  money 
basis.  The  western  debt,  representing  extensive  farm  improvements 
and  aggressive  merchandising  and  brokerage  operations,  had  been 
accumulated  in  depreciated  greenbacks.  Now  the  east  found  her- 
self in  that  happy  position  where  the  sixty-cent  dollars  she  had  un- 
loaded were  coming  back  to  her  in  the  same  kind  of  currency,  but 
now  worth  ninety-five  cents  on  the  dollar.  More  and  more  this  situa- 
tion infuriated  the  west  until  in  1868  Congress  yielded  under  pres- 
sure from  the  newer  section  of  the  country  and  decided  that  there 


SECOND  BUILDING  OF  THE  FIRST  NATIONAL  BANK 
('diner  State  and  Washington  Streets,  erected  in  1868. 


UNION   NATIONAL  BANK 
(  orner  La  Salle  and  Washington  streets,  before  tlie  fire  of  1871. 


HISTORY  OF  BANK  I  NO  IX   ILLINOIS  205 

would  be  no  further  contraction  of  the  currency.     Even  this  was  not 

sufficient  for  the  ambitious  west  which  was  facing-  great  difficulties 
through  the  money  stringency,  and  crying  constantly  for  more  paper 
currency. 

About  this  time  the  national  government  proposed  to  settle  some 
of  its  difficulties  by  refunding  its  six  per  cent  bonds  for  five  per  cent 
issues.  This  resulted  in  violent  opposition  on  the  part  of  bankers. 
Members  of  the  Chicago  Clearing  House  Association  and  representa- 
tives of  some  of  the  banking  institutions  of  other  sections  of  the  west 
actually  sent  a  protest  to  Congress  saying  that  such  a  bill  threatened 
the  national  bank  note  circulation  which  was  based  on  bond  owner- 
ship. These  men  claimed  that  the  west,  at  least,  could  not  submit 
to  so  gTeat  a  loss  on  its  invested  capital.  In  general,  these  bankers 
demanded  a  resumption  of  specie  payments  rather  than  a  refund- 
ing of  the  national  debt,  but,  in  spite  of  them,  an  act  for  refunding 
was  passed  on  July  14.  1870,  and  the  federal  bonds  were  converted 
to  lower  rates. 

The  resumption  of  specie  payments  was  not  finally  effected  until 
1879,  but  in  Illinois  there  were  demands  made  for  it  throughout  the  en- 
tire decade,  which,  largely,  started  in  an  agitation  against  the  fractional 
paper  authorized  by  Congress  in  1863.  This  had  been  issued  to  the 
amount  of  $20,215,63.5  in  small  notes  which  were  not  kept  in  good 
condition  and  so  had  become  so  difficult  to  handle  that  merchants 
were  demanding  that  they  be  retired  and  silver  coin  issued  in  their 
place.  It  was  the  general  belief,  according  to  the  Chicago  Tribune 
of  March  5,  1870,  that  if  Congress  would  order  that  no  more  of  such 
fractional  currency  be  issued,  except  in  exchange  for  torn  bills,  and 
that  all  received  should  be  cancelled,  specie  resumption,  so  far  as 
retail  business  was  concerned,  could  be  had  almost  immediately.  This 
action,  however,  was  not  taken  by  Congress  until  1876. 

Although  Illinois  had  been  practically  without  banks  at  the  time 
of  the  inauguration  of  the  National  Bank  Act,  and  had  supported 
the  new  national  system  even  more  vigorously  than  had  many  other 
parts  of  the  country,  there  seemed  to  be  a  constant  need  for  financial 
institutions  to  supplement  the  national  banks.  Even  the  legislature 
of  1867  which  had  attempted  to  eliminate  the  free  banks  of  the  state, 
realizing  this  need,  organized  twenty-five  banking  institutions  by 
special  charter.  Some  of  them  were  commercial  banks,  some  for 
savings  only,  some  trust  companies,  and  others  combined  two  or 
more  of  these  phases  of  banking.     The  same  session  provided  for 


206  FINANCING  AN  EMPIRE 

two  loan  and  trust  companies  and  seventy-two  insurance  companies. 
(Laws  of  1867,  2:98ff,  277ff.)  Again  in  the  session  of  1869  char- 
ters were  granted  by  special  act — this  time  to  sixty-seven  banks, 
fourteen  loan  and  trust  companies,  and  fifty-six  insurance  companies. 
In  none  of  these  charters,  however,  were  provisions  made  for  re- 
ports by  the  corporations  to  any  state  officer,  nor  were  there  any 
laws  calling  for  such  reports  from  any  banking  institutions,  except 
the  few  remaining  free  banks. a  Since  the  charters  were  so  loosely 
drawn,  it  is  possible  that  many  of  them,  particularly  among  the  in- 
surance companies,  were  used  for  purposes  other  than  those  desig- 
nated. 

In  1870  another  constitutional  convention  met  which  framed  the 
constitution  under  which  the  state  still  operates.  This  convention 
gave  due  consideration  to  the  establishment  of  a  suitable  state  bank. 
It  was  of  the  opinion  that,  although  Illinois  had  tried  state  banking 
to  its  heart's  content  and  had  suffered  intolerably  as  a  result,  still 
some  provision  should  be  made  for  a  system  of  banks  of  issue  which 
might  be  of  value  in  case  of  emergency.  It  was  agreed  that  in  order 
to  avoid  the  repetition  of  difficulties  such  as  accompanied  the  out- 
break of  the  Civil  war,  all  bank  circulation  of  the  future  should  be 
based  on  national  securities  which  would  be  more  easily  convertible 
than  those  of  individual  states.  Also,  the  convention  adopted  a  much 
needed  clause  depriving  the  legislature  of  the  power  to  pass  special 
legislation  such  as  had  been  in  use  during  the  past  few  years.  The 
convention  showed  little  enthusiasm  for  state  banks  and  might  have 
neglected  this  part  of  its  task  except  for  the  fact  that  the  national 
banking  institutions  were  believed  by  many  to  be  only  temporary 
in  nature  because  of  the  jjolitieal  opposition  to  them.  In  the  eyes 
of  some,  national  banks  were  a  great  monopoly  and  it  was  argued 
that  as  the  national  banking  system  would  probably  expire  by  the 
statute  of  limitations  in  fourteen  years  and  certainly  when  the  na- 
tional debt  was  paid  off,  it  was  best  to  provide  a  system  for  replac- 
ing it.  On  April  29,  1870,  the  committee  on  banks  and  currency 
made  its  report  to  the  convention  which  was  adopted  and  later,  when 
put  to  vote,  ratified  by  the  people.  The  provisions  it  presented 
were  these: 


a  Subsequently,  as  we  shall  see  later,  it  was  held  that  the  free  banking  law  was  not 
actually  repealed  and  on  the  discovery  of  this  a  repealing  act  was  passed  in  1873  which 
did  not  become  effective  until  July  1,  1874.  Just  prior  to  this  date  there  was  a  rush  for 
free  banking  charters. 


HISTORY  OF  BANKING  IN  ILLINOIS  207 

"Xo  state  bank  shall  be  created,  nor  shall  the  state  own  or  be 
liable  for  any  stock  in  any  corporation  or  joint-stock  company  or 
association  for  banking  purposes  now  created,  or  to  be  hereafter 
created.  Xo  act  of  the  General  Assembly  authorizing  or  creating' 
corporations  or  associations  with  banking  powers,  whether  of  issue, 
deposit  or  discount,  nor  amendments  thereto,  shall  go  into  effect, 
or  in  any  manner  be  in  force,  unless  the  same  shall  be  submitted  to 
a  vote  of  the  people  at  the  general  election  next  succeeding  the  pas- 
sage  of  the  same,  and  be  approved  by  a  majority  of  all  the  votes 
cast  at  such  election  for  or  against  such  law.  Every  stockholder  in  a 
banking  corporation  or  institution  shall  be  individually  responsible 
and  liable  to  its  creditors,  over  and  above  the  amount  of  stock  by 
him  or  her  held,  to  an  amount  equal  to  his  or  her  respective  shares 
so  held  for  all  its  liabilities  accruing  while  he  or  she  remains  such 
stockholder.  The  suspension  of  specie  payments  by  banking  insti- 
tutions, on  their  circulation  created  by  the  laws  of  this  State,  shall 
never  be  permitted  or  sanctioned.  Every  banking  association  now 
or  which  may  hereafter  be  organized  under  the  laws  of  this  State 
shall  make  and  publish  a  full  and  accurate  quarterly  statement  of 
its  affairs  (which  shall  be  certified  to  under  oath  by  one  or  more  of 
its  officers)  as  may  be  provided  by  law. 

"If  a  banking  law  shall  be  enacted,  it  shall  provide  for  the  reg- 
istry and  countersigning  by  an  officer  of  State  of  all  bills  or  paper 
credit  designed  to  circulate  as  money,  and  require  security  to  the  full 
amount  thereof  to  be  deposited  with  the  State  Treasurer  in  United 
States  or  Illinois  State  stocks,  to  be  rated  at  ten  per  cent  below  their 
par  value:  and  in  case  of  a  depreciation  of  said  stocks  to  the  amount 
of  ten  per  cent  below  par,  the  bank  or  banks  owning  said  stock  shall 
be  required  to  make  up  said  deficiency  by  depositing  additional 
stocks.  And  said  law  shall  provide  for  the  recording  of  the  names 
of  all  stockholders  in  such  corporations,  the  amount  of  stock  held 
by  each,  the  time  of  any  transfer  thereof,  and  to  whom  such  transfer 
is  made." 

The  long  debate  which  followed  the  introduction  of  this  last 
paragraph  plainly  indicated  that  in  the  minds  of  very  many  the  na- 
tional banking  system  was  far  from  a  permanent  institution.  The 
section  also  provided  first  for  the  taxation  of  paid-up  capital  of 
any  banking  association  and  for  the  taxation  of  any  capital  actually 
used  by  private  bankers  receiving  deposits.     These  two  stipulations 


208  FINANCING  AN  EMPIRE 

were  stricken  out  after  much  debate  as  more  properly  belonging  to 
the  committee  on  revenue. 

After  the  adoption  of  the  constitution  of  1870,  little  other  bank- 
ing legislation  occurred  until  the  passage  of  the  general  bank  act 
of  1887.  In  1875  foreign  corporations  were  authorized  to  loan 
money  in  the  state  and  to  take  real  estate  as  security  for  such  loans, 
but  they  were  prohibited  from  exercising  banking  powers  and  privi- 
leges. In  1879  a  greater  protection  was  provided  for  depositors 
through  a  law  making  the  receiving  of  bank  deposits  by  any  officer 
after  the  actual  insolvency  of  the  bank  an  act  of  embezzlement,  and 
the  converting  of  a  bank's  funds  to  the  private  use  of  any  officer 
of  the  bank,  larceny.  This  was  aimed  against  abuses  which  had  char- 
acterized bank  failures  of  1877.  At  the  same  session  an  act  was 
passed  forbidding  savings  banks  from  becoming  liable  as  guaran- 
tors. So,  with  the  exception  of  these  minor  pieces  of  legislation,  for 
almost  twenty  years  after  the  adoption  of  the  constitution,  there  was 
no  change  made  in  existing  bank  legislation.  During  that  time  the 
banking  business  of  the  state  was  carried  on  by  national,  private,  and 
a  comparatively  small  number  of  specially  chartered  state  banks. 
National  banks  increased  in  number  during  this  time;  chartered  state 
banks  decreased  in  number  and  played  no  very  important  part  in 
the  banking  of  the  state.  Private  banks,  however,  grew  bolh  in 
number  and  influence. 


CHAPTER  XI 
THE  CHICAGO  FIRE 

The  Fire — its  start  and  course  followed — General  destruction — Efforts  of  bankers  to 
protect  their  property — Temporary  banking  quarters  after  the  fire — Efforts  to 
re-establish  business — Opening  the  safes — Boom  following  the  fire — Actual  losses 
sustained  by  banks — Subsequent  increase  in  the  business  of  banks — Prosperity 
leading  to  over-confidence  and  panic. 

A  slight  panic  of  short  duration  was  started  in  the  country  in 
general  and  the  east  in  particular  when  on  the  evening  of  Sunday, 
October  8,  1871,  after  a  long,  hot  summer  with  very  little  rain,  a 
tire  broke  out  southwest  of  the  business  district  of  Chicago  which 
was  not  stopped  until  it  had  utterly  ruined  not  only  the  downtown 
sections,  but  large  tracts  of  residence  and  other  outlying  districts 
as  well.  In  the  first  six  and  one-half  hours  the  flames,  which  started 
in  a  small  frame  barn,  had  traveled  a  distance  of  almost  three  miles. 
A  heavy  wind  fanned  them  into  a  blast  which  not  even  the  river  could 
stop.  Everything  in  their  path  was  completely  destroyed,  from  the 
near  west  side  to  the  shores  of  the  lake.  After  jumping  the 
south  branch  of  the  Chicago  River,  the  fire  swept  across  the  down- 
town district  as  far  as  the  main  branch,  over  which  it  was  carried 
to  the  near  north  side.  Buildings  as  far  north  as  Lincoln  Park  were 
destroyed  and  devastation  was  not  complete  until  after  about  twenty- 
four  hours,  when  the  flames  had  spent  themselves.  By  that  time 
everything  had  been  so  completely  consumed  that  not  even  any  note- 
worthy ruins  remained.  Marble  wralls  had  melted  away,  metal  in 
any  form  was  reduced  to  a  fluid  mass,  sidewalks,  bridges,  everything, 
was  demolished.  Since  the  city's  water  works  were  in  the  district 
burned,  an  attempt  was  made  to  fight  the  terrible  flames  with  gun 
powder  and  in  a  few  instances  this  method  did  serve  to  check  some- 
what the  ever-spreading  destruction.  The  population  in  the  path 
of  the  fire  was  forced  to  the  shores  of  Lake  Michigan  and  even  there 
the  heat  was  so  intense  that  for  a  time  it  seemed  people  would  have 
to  take  to  the  lake  itself  if  they  would  preserve  their  lives.     Accord- 

209 


210  FINANCING  AN  EMPIRE 

ing  to  some  stories  told  of  the  fire,  the  intense  heat  was  even  wafted 
across  the  waters  of  the  lake  and  blown  to  the  Michigan  shores. 

In  the  whole  city  of  Chicago  there  was  only  one  bank  building- 
left  standing — that  of  the  Prairie  State  Loan  and  Trust  Company. 
The  First  National  Bank  was  deemed  to  be  especially  fortunate  in 
that,  while  the  interior  of  its  building  was  completely  destroyed,  the 
outside  walls  were  left  standing  in  such  good  shape  that  they  could 
be  used  in  the  reconstruction.  On  the  whole  south  side  of  the  city, 
besides  the  walls  of  the  First  National  Bank,  there  were  left  standing 
only  the  walls  of  the  Tribune  Building,  the  Post  Office,  and  of  the 
east  wing  of  the  Court  House — practically  all  else  of  importance 
had  been  leveled  to  the  ground. 

The  fire  had  started  at  some  distance  from  the  banking  district, 
but  as  soon  as  it  showed  signs  of  spreading  beyond  bounds,  many 
bankers  took  steps  to  remove  currency  and  securities  to  places  of 
safety.  F.  I.  Tinkham  of  the  Second  National  Bank  hurried  to  the 
banking  office  and  secured  six  hundred  thousand  dollars  in  green- 
backs, which  he  put  into  a  trunk.  As  every  means  of  transportation 
had  been  bought  at  high  prices,  Mr.  Tinkham  could  not  get  a  con- 
\  eyance  for  his  precious  load,  but  found  a  colored  man  who  was  will- 
ing to  carry  it  to  the  Milwaukee  depot  for  one  thousand  dollars  in 
payment.  Mr.  Tinkham  followed  the  man — at  some  distance  lest  he 
be  recognized  and  thieves  suspect  the  contents  of  the  trunk — but 
the  streets  were  very  crowded  and  soon  he  was  almost  hopelessly 
separated  from  his  money.  Then  the  fire  took  a  turn  in  his  direc- 
tion and,  after  being  almost  suffocated,  he  was  driven  to  the  lake. 
There  he  found  a  tug  boat  which  took  him  around  to  the  depot  where 
his  colored  man  was  waiting.  Mr.  Tinkham  paid  the  thousand  dol- 
lars, took  the  trunk  aboard  a  train  bound  for  Milwaukee,  and  depos- 
ited the  money  in  a  bank  there. 

S.  W.  Rawson,  president  of  the  Union  Trust  Company,  hitched 
his  horse  to  a  light  buggy  and  with  this  assistance  removed  a  great 
quantity  of  money  and  securities  from  the  safe  in  his  bank.  These 
he  took  to  his  home,  which  was  outside  the  path  of  the  fire,  and  hid 
them  in  the  oat  bin  in  his  barn. 

Another  experience  of  the  Union  Trust  Company  brought  into 
some  prominence  as  an  inventor  a  man  who,  up  to  the  time  of  the 
fire,  had  been  a  dealer  in  ink.  This  man  was  known  to  one  of  the 
officers  of  the  Trust  Company  who  out  of  friendship  bought  a  violet 
colored   ink   he   sold.      When  the   safes  of   the  company  were  re- 


(From    Andreas'    History    of    Chicago) 

MAP  OF  CHICAGO  SHOWING  ALL  EXTENSIONS  UP  TO  THE  TIME  OF  THE  FIRE 


212  FINANCING  AX  EMPIRE 

covered  it  was  found  that  the  books  were  badly  charred,  but  that  on 
every  page  the  writing  stood  out  plainly  and  no  record  was  lost.  No 
other  ink,  it  seems,  was  made  more  legible  by  the  action  of  the  flames, 
as  was  this,  and  thereafter  the  dealer's  violet  ink  came  into  great  de- 
mand for  the  keeping  of  valuable  records. 

According  to  records  of  the  Merchants  Loan  and  Trust  Com- 
pany, several  officers  of  the  bank,  in  spite  of  the  fact  that  their  safes 
had  recently  been  put  in  excellent  condition  and  declared  to  be  of 
the  best  fireproof  construction,  decided  that  for  added  safety  they 
would  take  all  money,  discounted  bills,  and  other  negotiable  paper 
to  a  place  of  even  greater  safety  outside  the  burning  district.  So, 
late  at  night,  as  the  fire  bore  down  upon  them,  these  men  opened 
the  safes,  burdened  themselves  with  precious  packages  of  the  bank's 
money,  and  fled  through  the  crowded  streets.  Before  leaving  they 
carefully  closed  and  locked  all  vault  doors  to  preserve  such  valuables 
as  they  were  unable  to  carry  away.  Later  the  cashier  and  bookkeeper 
returned  in  the  hope  of  removing  still  more,  but  by  then  the  fire  was 
so  close  and  so  intense  that  they  could  obtain  nothing  more  than  a 
list  of  the  numbers  of  government  bonds  held  by  the  bank.  When 
the  safes  had  cooled  sufficiently  to  make  an  investigation  possible, 
it  was  found  that  one  of  the  large  book  vaults  had  given  way  to  the 
heat  and  pressure  of  falling  walls  and  most  of  the  contents  burned 
beyond  any  possible  recognition.  Among  other  records  lost  was  that  of 
some  six  hundred  accounts,  involving  a  sum  of  two  million  dollars. 
Not  a  scrap  of  paper  was  left  the  bank  through  which  the  condition 
of  any  of  these  accounts  might  be  determined.  Therefore,  when  the 
bank  opened  for  business  on  October  18  in  the  basement  of  the 
president's  house  on  Wabash  Avenue — a  place  so  small  that  there 
was  not  room  for  all  those  who  would  crowd  in,  and  without  counters 
on  which  to  work — it  had  a  printed  notice  inserted  in  several  of  the 
dailies  asking  depositors  to  bring  in  their  accounts  for  verification 
as  rapidly  as  possible.  Each  account  was  accompanied  by  proofs 
and  affidavits  as  to  correctness,  and  when  such  evidence  was  deemed 
sufficiently  conclusive  the  account  was  at  once  admitted  to  the  books 
of  the  bank  without  further  question.  Deposits  were  received  and 
paid  out  from  the  first  day  and  on  that  day,  as  on  those  that  fol- 
lowed, more  was  received  than  paid  out.  Within  a  few  weeks'  time 
the  books  of  the  bank  had  been  re-established  and  business  was  again 
running  smoothly,  all  without  the  interruption  of  a  single  day  after 
the  reopening. 


{From  Andreas'  History  of  Chicago) 

CLARK   AND  RANDOLPH  STREETS  BEFORE  THE  FIRE 


CL 


I'm  in  Andreas'  History  of  Chicago) 
ARK   AND   RANDOLPH  STREETS  AFTER  THE   FIRI 


214  FINANCING  AN  EMPIRE 

In  the  building  which  the  Commercial  National  Bank  found  for 
its  temporary  quarters  the  floors  were  not  strong  enough  to  bear 
the  weight  of  the  bank's  safe  which  had  been  rescued  from  the  ruins, 
so  it  with  its  valuable  contents  iiad  to  be  left  in  the  street  outside 
under  guard  so  long  as  business  was  carried  on  from  that  place. 

The  many  difficulties  with  which  these  banks  had  to  contend, 
first  in  finding  and  then  in  keeping  temporary  quarters  in  a  city 
which  was  being  rapidly  rebuilt,  is  amply  shown  in  the  case  of  the 
First  National  Bank  which,  because  the  walls  of  its  building  had 
been  left  standing,  was  able  to  return  to  it  within  three  months'  time, 
but  which  meantime  had  to  make  three  moves  to  temporary  quarters 
in  various  parts  of  the  city.  This  bank  first  established  itself  in  an 
old  warehouse  on  State  and  Sixteenth  Streets — more  than  two  miles 
from  its  former  location  in  the  business  district.  Next,  it  was  moved 
into  a  building  on  Wabash  Avenue  near  Twelfth  Street,  and  still 
later  to  a  frame  structure  on  Washington  Street  in  the  business  dis- 
trict. By  January  1,  1872,  the  old  building  had  been  sufficiently  re- 
stored so  that  the  bank  could  again  take  up  quarters  there.  That 
the  bank  was  able  to  do  a  prosperous  business  in  spite  of  having  held 
its  office  in  four  locations  at  some  distance  from  each  other  in  less 
than  three  months'  time,  shows  how  patient  the  people  of  Chicago 
had  to  be  in  hunting  for  their  journeying  banks. 

From  among  the  savings  banks  of  the  city  only  two — the  Hi- 
bernian and  the  Union  Insurance  and  Trust  Company,  each  of  which 
had  great  difficulty  in  removing  their  books  and  papers  fiom 
the  ruins — had  resumed  business  by  Tuesday,  October  19.  Since 
only  the  smaller  depositors  found  themselves  in  great  need  of  imme- 
diate funds,  far  more  was  put  into  these  banks,  as  was  the  case  with 
the  commercial  institutions,  than  was  withdrawn  from  them. 

Banking  in  Illinois  up  to  the  time  of  the  fire  had  been  progress- 
ing in  an  orderly  and  prosperous  manner.  Chicago  had  become  the 
economic  nerve  center  of  a  large  region  in  the  middle  west.  Conse- 
quently, the  destruction  of  some  one  hundred  and  eighty-seven  mil- 
lions in  capital  necessarily  was  felt  throughout  the  whole  country. 
Fire  insurance  companies  carried  risks  amounting  to  over  one  hun- 
dred million  dollars  in  the  burned  district  and  claims,  when  adjusted, 
amounted  to  more  than  ninety  millions.  Of  this  amount  about  thir- 
ty-eight million  was  paid  immediately,  but  in  an  effort  to  meet  the 
great  demand  many  companies  were  forced  into  the  hands  of  re- 
ceivers.    Of  the  Illinois  companies  involved,  many  were  onlv  on  a 


i  From  Andreas'  History  of  Chicago* 

RUINS  OF  THE  MARINE  BANK 


(Courtesy  Illinois  Merchants  Trust  Company) 

OPENING   THE    VAULTS   OF  THE   MERCHANTS   LOAN   AND   TRUST    COMPANY 

AFTER  THE  FIRE 
From  a  sketch  made  in  1871 


216  FINANCING  AX  EMPIRE 

paper  basis,  as  they  had  received  their  charters  through  the  legisla- 
tures of  1867  and  1869  which,  in  these  two  years,  chartered  one  hun- 
dred and  twenty-eight  insurance  companies  of  all  kinds.  Many 
of  these  were  completely  wiped  out  and  such  as  were  able  to  with- 
stand the  ordeal  were  reorganized  on  a  sounder  basis.  It  is  to  be 
hoped  that  such  reorganization  compensated  in  part  for  the  diffi- 
culties which  had  been  endured.  It  was  the  general  belief  among 
many  that,  not  only  would  the  insurance  companies  fail  and  so  give 
them  nothing  on  their  property  loss,  but  that  the  banks,  whose  build- 
ings had  been  destroyed,  must  fail  also.  Confidence  returned,  how- 
ever, when  on  Wednesday,  October  11,  a  meeting  of  the  principal 
bankers  of  the  city  was  held  at  which  it  was  resolved  to  resume  busi- 
ness at  once,  and  when,  even  before  the  close  of  the  day,  twelve  banks 
had  secured  temporary  locations,  chiefly  in  unburned  residences,  and 
re-established  themselves  before  the  ruins  had  cooled. 

In  discussing  the  matter  at  their  meeting,  the  bankers  first 
thought  it  best  to  pay  their  depositors  fifteen  to  twenty-five  per 
cent  until  a  clearer  view  of  the  future  could  be  obtained.  In  the 
midst  of  this  discussion  Chauncey  B.  Blair,  President  of  the  Mer- 
chants National  Bank,  quietly  and  without  rising  from  his  chair, 
said  : 

"Gentlemen,  I  always  like  to  agree  with  my  banker  friends  and 
in  ordinary  matters  would  yield  to  the  majority,-  but  when  it  comes 
to  paying  my  debts  or  the  debts  of  my  bank,  I  have  only  this  to  say : 
I  have  always  paid  in  full  and  always  shall  if  I  can.  Perhaps  I  shall 
not  even  be  able  to  pay  twenty-five  per  cent.  The  safe  is  still  closed. 
It  may  contain  only  ashes,  but  I  shall  do  the  best  I  can  to  meet  all 
the  demands  of  my  depositors." 

This  expression  of  courage  on  the  part  of  Mr.  Blair  was  quickly 
seconded  by  George  Sturges  of  the  Northwestern  National  Bank. 
Some  of  the  others  objected,  but  when  on  the  next  day  the  Comp- 
troller of  the  Currency  arrived  in  the  city  to  examine  the  banks  and 
said  that  partial  resumption  might  not  be  resorted  to,  it  was  agreed 
that  every  bank  would  pay  out  all  demanded  of  it  so  far  as  it  was 
able. 

As  soon  as  the  safes  could  be  recovered  from  the  wreckage  and 
opened,  it  was  found  that  only  one — that  of  the  firm  of  L.  Silver- 
man and  Company — had  been  so  wrecked  as  to  permit  the  money 
within  it  to  be  burned.  In  this  instance  fifty  thousand  dollars  in 
gold  and  currency   were   destroyed.      No  other  bank   had   a   serious 


(Courtesy    Fiist   National   Bank) 

RUINS  OF  THE  FIRST  NATIONAL  BANK 


i  From  Andreas'  History  of  Chicago* 

CLARK  STREET  BRIDGE  AFTER  THE  FIRE 


218  FINANCING  AN  EMPIRE 

loss  of  actual  money  and  in  most  instances  the  vaults  were  intact 
when  found.  However,  relieved  as  the  people  of  Chicago  were  to 
know  that  actual  currency  held  in  the  hanks  had  not  been  destroyed, 
they  were  still  of  the  opinion  that  the  banks  would  meet  insurmount- 
able difficulties  in  the  collection  of  their  notes.  The  banks  them- 
selves were  no  less  alive  to  this  difficulty  and  did  everything-  in  their 
power  to  avoid  the  calling  of  loans  which  might  result  in  widespread 
panic  and  disaster.  By  Tuesday — one  week  after  the  fire — most  of 
them  had  managed  to  open  temporary  offices  and  were  paying  out 
deposits  unconditionally  as  demanded.  This  procedure  so  far  re- 
stored confidence  that  no  money  was  drawn  except  that  which  was 
actually  needed.  Also,  large  sums  were  being  forwarded  to  Chi- 
cago for  relief  and  millions  of  dollars  were  being  paid  by  insurance 
companies  in  settlement  of  losses. 

Scarcely  had  the  ruins  cooled  when  eastern  capital  began  coming 
into  Chicago  to  be  invested  in  real  estate  or  to  set  up  other  specula- 
tive enterprises  in  the  burned  area.  Furthermore,  the  good  crops 
of  that  year  had  matured  unusually  early — because  of  the  hot  weather 
— and  such  as  had  begun  to  move  in  July  were  now  returning  to  the 
banks  the  money  put  into  them.  With  all  these  unusual  sources  of 
currency  supply,  by  November,  instead  of  being  in  a  state  of  bank- 
ruptcy, the  banks  found  themselves  troubled  with  idle  funds.  By 
January,  1872,  the  money  market  was  described' as  "plethoric,"  and 
surplus  funds  could  not  all  be  placed  even  in  the  great  building  oper- 
ations that  were  going  on. 

Therefore,  it  might  seem  that  the  banks  of  Chicago  were  actually 
benefited  by  the  fire.  Probably  less  than  three  hundred  thousand 
dollars  was  lost  on  bills  receivable  and  about  a  million  dollars  in 
property  and  money  burned.  Even  as  early  as  October  16,  when 
Comptroller  of  the  Currency  Hubbard  made  an  official  examina- 
tion, the  banks  of  Chicago  were  found  not  only  in  a  satisfactory 
condition,  but  money  was  pouring  into  the  city  at  such  a  rate  that 
almost  from  the  very  moment  of  resumption  of  business  the  banks 
held  more  money  than  before  the  fire.  At  the  same  time  the  credit 
of  Chicago's  merchants  was  such  that  loans  to  almost  any  amount 
were  obtainable  by  them  on  request — both  at  home  and  elsewhere. 
Eastern  and  European  capitalists  formed  associations  especialty  for 
the  purpose  of  lending  money  to  aid  in  the  rebuilding  of  the  city 
and,  as  a  result,  millions  were  loaned  at  reasonable  rates  of  interest 


Ij'rom  Andreas'  History  of  Chicago) 

SAFES  PILED  ON  DEARBORN  STREET 


(From  Andreas'  History  of  Chicago) 

COOLING  OFF   SAFE   TAKEN   FROM   RUINS   OF 
FIFTH  NATIONAL  BANK,   CHICAGO 


220  FINANCING  AN  EMPIRE 

and  on  terms  entirely  satisfactory  to  the  borrowers.  With  this  help, 
the  whole  city  was  rebuilt  within  two  years'  time. 

Up  to  the  time  of  the  fires  Chicago  had  grown  in  a  haphazard 
way  with  little  thought  for  the  future  requirements  of  a  great  city. 
There  was,  therefore,  a  great  lack  of  uniformity  in  the  grading  for 
streets  and  buildings,  which  created  physical  obstacles  for  the  proper 
growth  of  the  city.  The  fire  destroyed  all  these  and  thereby  gave 
rise  to  a  great  incentive  for  the  city's  proper  upbuilding.  Out  of 
the  ruins  there  sprang  a  new  spirit  of  progress  almost  dramatic  in 
its  scope.  The  commercial  reach  of  the  city  broadened  and  the  great 
tendency  toward  railroad  development  which  had  already  come  over 
the  country  was  in  large  part  concentrated  in  the  west,  middle  west, 
and  other  regions  tributary  to  Chicago.  The  west  was  now  being 
settled  rapidly,  iron  ore  had  been  discovered  in  Michigan  and  Minne- 
sota, and  copper  production  was  growing  in  value  and  quantity.  The 
lumber  of  Michigan,  Wisconsin,  and  Minnesota  and  the  coal  of  Illi- 
nois, with  adequate  railroad  transportation,  were  giving  new  wealth 
to  the  country  and  new  business  standing  to  Chicago.  Also,  the  ex- 
pansion was  extending  the  fertile  farms  of  the  middle  west  which 
were  producing  in  ever-increasing  quantity.  In  the  country  looking 
to  Chicago  as  its  chief  business  center  there  was  everything  rated 
as  wealth,  everything  which  could  feed  business  into  the  growing 
city. 

This  ever-increasing  business  looked  to  the  banks  of  Chicago 
for  financial  support.  Promoters  and  speculators  from  other  parts 
of  the  country  who  were  financially  interested  in  the  developing  wrest 
and  north  did  their  banking  in  the  Illinois  city.  Therefore,  it  is  lit- 
tle to  be  wondered  that,  although  of  her  nineteen  national  banks, 
eighteen  had  their  offices  destroyed  in  the  lire,  the  banks  of  Chicago 
were  able  to  continue  and  increase  their  business  in  a  way  which 
would  seem  utterly  impossible  under  such  difficult  conditions. 

According  to  estimates  made  at  the  time,  it  was  believed 
that  these  national  banks  had  lost  in  buildings,  furniture, 
and  fixtures  some  $170,000,  and  on  discounted  paper  $000,000. 
Later  figures  showed  the  estimated  loss  on  bills  payable  to  be  even 
less  than  $300,000.  Total  bills  receivable  held  by  these  banks  at  the 
time  of  the  fire  were  said  to  amount  to  over  $21,000,000,  and  liabili- 
ties to  correspondent  banks  and  depositors  were  placed  at  more 
than  $20,000,000.  (Kane:  Romance  and  Tragedy  of  Banking, 
]).  59.)      However,  any  loss  sustained  from  the  fire  was  more  than 


THE  OGDEN  RESIDENCE  AFTER  THE  FIRE 
This  was  the  only  house  left  standing-  in  the  fire  district.     It  occupied  -what  is  now  Washing- 
ton  Square. 


(Courtesy  Central   liust  Cumiiany) 

FRAME  HOUSES  WHICH  STOOD  ON  MONROE  AT  LA  SALLE  STREET  UP  TO  THE 

TIME  OF  THE  FIRE  OF  1871 


222  FINANCING  AX  EMPIRE 

made  up  by  the  increased  business  which  followed  it.  In  this  regard 
it  is  interesting  to  compare  the  reports  on  national  banks  of  the  city 
made  by  the  Comptroller  of  the  Currency  one  week  before  the  out- 
break of  the  fire  and  again  in  the  following  June.  While  new  banks 
had  been  opened  meantime,  the  following  figures  are  only  for  those 
banks  doing  business  before  the  fire: 

October  2,  1871    June  10,  1872 

Capital $  7,800,000  $  8,300,000 

Surplus 3,242,000  3,103,497 

Deposits    27,477,921  30,342,922 

Loans 21,423,503  2.5,471,372 

Cash  and  securities  on  hand.  .  .5,977,32.5  7,284,580 

The  business  of  savings  banks  was  stimulated  even  more  dur- 
ing this  period  than  was  that  of  the  commercial  banks  and  only  a 
year  after  the  fire  they  held  an  aggregate  of  more  than  eleven  mil- 
lion dollars  of  deposits  against  only  seven  million  before  the  fire. 

The  greatly  increased  demand  for  banking  facilities  induced  the 
organization  of  two  new  national  banks  and  the  reorganization  of 
one  private  bank  under  a  national  charter,  so  that  within  a  year 
after  the  fire  Chicago  had  twenty-two  national  banks.  With  the 
organization  of  these,  the  aggregate  national  banking  capital  of  the 
city  amounted  to  over  nine  million  dollars  with  more  than  three  mil- 
lion in  surplus.  The  entire  banking  capital  of  the  city,  in  national, 
state,  and  private  institutions,  wras  then  approximately  sixteen  mil- 
lion dollars.  Before  the  fire  the  combined  capital  of  state  and  private 
banks  had  been  $0,950,000.  According  to  some  records  now  avail- 
able, by  the  end  of  1872  state  and  national  banks  stood  as  follows: 

Capital  and  Surplus       Deposits 

21   National  Banks $11,644,88.5  $23,060,507 

8  State  Banks 2,926,000  3,055,627 

18  Savings  Banks  * 12,013,000 

Among  the  new  banking  institutions  opened  in  Chicago  imme- 
diately after  the  fire  was  an  office  of  the  Hank  of  Montreal  which, 
in  order  to  facilitate  credit  operations  and  to  attract  English  capital 
because  of  the  opportunity  to  profit  by  the  high  interest  rates  then 
prevailing  in  Chicago  and  the  west,  was  opened  on   November  15, 

*  Some  of  these  were  connected  with  other  institutions.  (Andreas:  History  of  Chicago, 
Vol.  8,  p.  +85.) 


HISTORY  OP  BANKING  IN  ILLINOIS 


22:i 


a  little  more  than  a  month  after  the  tire.  This  agency*of  the  Bank 
of  Montreal  greatly  assisted  the  forwarding  of  the  general  mercan- 
tile movement  and  increased  credits  on  the  east,  Europe,  and  even 
China. 

Thus,  through  the  generous  financial  confidence  given  by  friends 
and  business  promoters  from  without,  together  with  the  spirit  of  co- 
operation and  progress  on  behalf  of  bankers  and  others  within,  in- 
stead of  becoming  a  cause  for  nation-wide  depression  and  prolonged 
financial  distress,  Chicago's  disaster  became  an  incentive  for  a  busi- 
ness activity  in  which  centered  the  prosperity  of  the  country  until 
the  over-confidence  horn  of  that  prosperity  later  induced  a  degree  of 
speculation  which  could  not  do  otherwise  than  lead  to  panic. 


FIGHTING  THE  FIRE  AT  THE  COURTHOUSE 

From   a   pen   and  ink  sketch   belonging  to  the 

Central  Trust  Company  of  Illinois. 


CHAPTER  XII 
THE  PANIC  OF  1873 

General  prosperity  and  railroad  development — Over-financing  of  industries  and  rail- 
roads— Financial  stringency  during  crop  moving  season  of  1872 — Precipitation  of 
the  panic  of  1873 — Failure  of  Jay  Cooke  and  Company — Effect  of  the  Cooke  failure 
on  business  in  Chicago — Suspension  of  cash  payments  in  the  East — Chicago's 
stand  against  the  use  of  clearing  house  certificates — Subsequent  movement  of 
cash  to  Chicago — Rapid  passing  of  acute  panic — Business  depression  and  bank 
failures  continued  for  the  next  five  years — General  scarcity  of  currency — Local 
money  issues — Federal  aid — Widespread  economy  and  consequent  accumulation 
of  unused  funds — Beginning  of  agitation  for  currency  inflation. 

In  many  respects  the  rebuilding  of  Chicago  after  the  fire  was 
made  easier  because  it  came  on  the  crest  of  a  wave  of  widespread 
speculative  activity.  The  industrial  revival  which  followed  the  fire 
was  very  promising  and  was  greatly  aided  by  the  expansion  in  rail- 
way building  which  had  been  going  on  at  a  remarkable  rate  for  two 
or  three  years.  Between  the  years  1860  and  1868  the  average  annual 
amount  of  new  railroads  built  amounted  to  1,499  miles.  During  the 
next  four  years,  however,  almost  twenty-five  thousand  miles  were 
built,  or  an  amount  equal  to  all  the  railroads  that  had  been  pre- 
viously constructed  in  the  country.  In  Illinois  the  growth  of  such 
roads  between  1860  and  1868  had  been  only  six  hundred  and  fifty 
miles,  but,  beginning  with  1869,  when  the  total  in  the  state  was  only 
4,031  miles,  there  was  an  expansion  which  increased  the  total  to 
6,361  miles  in  1872.  Actually,  this  growth  was  more  rapid  than  the 
population  required. 

Between  1861  and  1868  it  is  estimated  that  the  total  United 
States  debt  abroad  amounted  to  one  and  one-half  billion  dollars.  In 
the  following  five  years  $340,000,000  was  needed  annually  for  the 
financing  of  the  great  railroad  expansion.  This  was  raised  chiefly 
by  the  sale  of  bonds  and  other  securities,  a  large  part  of  which  were 
sold  abroad.  At  the  same  time,  the  development  of  the  railroads 
brought  about  expansion  in  other  lines  of  business  also  issuing  bonds 

224 


HISTORY  OF  BANKING  IX  ILLINOIS  225 

to  be  sold  at  home  and  abroad.  Soon  so  many  securities  had  been 
issued  that  the  market  for  them  fell  and  holders  abroad  began  to 
force  them  on  the  market  here  until  even  Americans  would  not  buy 
them  and  began  to  lose  confidence  in  the  stability  of  the  enterprises 
behind  this  vast  flood  of  securities.  In  order  to  preserve  a  situation 
which  threatened  to  end  in  disaster,  the  banks  and  other  financial  in- 
stitutions of  the  country  bought  these  securities  to  the  limit  of  their 
ability  and  soon  had  far  too  great  a  proportion  of  their  assets,  which 
should  have  been  liquid,  tied  up  in  the  issues  of  roads  and  other  enter- 
prises, many  of  which  were  located  in  sections  of  the  country  as  yet 
unsettled  and  from  which  suitable  dividends  could  not  be  expected 
for  many  years  to  come. 

In  the  autumn  of  1872  some  financial  stringency  was  felt  by  city 
banks — particularly  in  Xew  York — at  crop  moving  time.  Crops 
had  been  good  and  heavy  withdrawals  were  made  for  moving  them. 
The  city  banks,  because  of  their  large  investments  in  securities  had 
not  left  an  adequate  surplus  of  ready  currency  to  meet  this  demand 
and  matters  appeared  serious  for  a  time.  The  government  came  to 
the  rescue,  however,  and  eased  the  situation  by  entering  the  market 
for  its  bonds  and  so  released  some  five  million  dollars  in  gold. 

The  next  year  the  movement  of  crops  began  early  in  September 
and  at  first  affairs  seemed  far  better  than  they  had  been  in  1872, 
but,  as  the  demands  grew  during  the  early  part  of  the  month,  some 
of  the  Xew  York  banks  again  found  themselves  unable  to  supply 
the  needed  currency  and  this  time  called  some  of  their  loans.  The 
speculative  excitement  during  the  past  five  years  had  appreciated 
values  to  an  abnormal  extent  and  this  situation  had  been  further 
emphasized  by  the  fire  in  Chicago.  Therefore,  with  the  first  calling 
of  loans  in  Xew  York  the  house  of  cards  began  to  waver.  A  shrink- 
age set  in  which  created  a  sudden  demand  from  all  quarters  for  ready 
money.  Real  estate  and  securities  depreciated  and  those  banks  which 
had  an  undue  proportion  of  their  funds  invested  in  such,  suddenly 
found  themselves  unable  to  meet  the  demands  of  their  depositors. 
Some  of  these  institutions  found  suspension  necessary.  This  brought 
about  a  further  calling  of  loans  and  with  it  the  failure  of  institutions 
of  other  types.  On  September  20  the  Xew  York  Stock  Exchange 
was  closed  for  ten  days.  In  making  his  report  for  the  year  Comp- 
troller of  the  Currency,  John  Jay  Knox,  said  in  part: 

"The  money  market  had  become  overloaded  with  debt,  the  cost 
of  railroad  construction  for  the  preceding  five  years  being  estimated 


226  FINANCING  AN  EMPIRE 

to  have  been  $1,700,000,000  or  about  $340,000,000  annually,  while 
debt  based  upon  almost  every  species  of  property — state,  city,  town, 
manufacturing  corporations,  and  mining  companies — had  been  sold 
in  the  market.  Such  bonds  and  stocks  had  been  disposed  of  to  a 
considerable  extent  in  foreign  markets,  and  so  long  as  this  continued, 
the  sale  of  such  securities  could  no  longer  be  effected  abroad,  the 
bonds  of  railroads  and  other  enterprises  of  like  nature  which  were 
in  process  of  construction  were  thus  forced  upon  the  market,  until 
their  negotiation  became  almost  impossible.  The  bankers  of  the 
city  of  New  York,  who  were  burdened  with  the  loan,  could  not  re- 
spond to  the  demands  of  their  creditors,  the  numerous  holders  of 
similar  securities  became  alarmed  and  the  panic  soon  extended 
throughout  the  country." 

Mr.  Knox  also  stated  that  he  believed  the  banks  of  New  York 
were  largely  responsible  for  the  conditions  bringing  on  the  panic 
through  their  intimate  relations  with  the  transactions  of  the  Stock 
Exchange  which  fostered  fictitious  values  at  home  and  abroad  on 
railroad  and  other  securities.  When,  as  a  result,  a  foreign  market 
could  no  longer  be  obtained,  these  issues  were  dumped  on  an  already 
overladen  home  market. 

As  early  as  the  second  week  of  September  there  were  a  few  small 
failures,  but  these  were  not  recognized  as  the  beginning  of  a  great 
storm  and  were  given  little  attention.  Nor  was  there  a  recognition 
of  the  fact  that  everything  was  now  ready  to  favor  a  great  panic. 
There  were  disorders  in  public  finance  and  a  multiplicity  of  railroad 
and  other  enterprises  with  scheme  upon  scheme  for  selling  their  secur- 
ities. These  developments  had  revolutionized  the  price  of  grain 
and  disturbed  the  status  of  the  farmer.  At  the  same  time  a  similar 
expansion  was  taking  place  abroad,  particularly  in  Russia  and 
South  America  where  additional  supplies,  together  with  readjust- 
ments in  trade  resulting  from  the  Suez  Canal,  gave  industrial  devel- 
opment sudden  spurts  beyond  all  imaginings  or  calculation.  With 
the  growth  in  railways,  there  developed  an  increased  demand  for 
iron,  which  in  turn  reacted  upon  other  industries,  until  there  seemed 
no  end  to  possibilities  for  speculation  in  the  industrial  world.  Mat- 
ters had  now  reached  such  a  state  that  it  was  difficult  to  go  further 
without  an  overthrow  and  a  reconstruction.  So,  when  one  small 
card  fell  out  of  the  great  house  of  cards,  the  remainder  was  bound 
to  topple  also. 

As  is  usually  the  case  with  panics,  this  one  started  in  the  failure 


HISTORY  OF  BANKING  IN  ILLINOIS  227 

of  one  large  house.  The  real  beginning  came  on  September  8,  1873, 
when  the  Warehouse  Security  Company  of  New  York  City  failed. 
This  company  made  advances  to  dealers  in  grain  and  produce,  but 
had  somehow  become  involved  in  the  financing  of  the  Missouri,  Kan- 
sas, and  Texas  Railroad.  Next  came  the  downfall  of  the  banking 
house  of  Kenvon,  Cox  and  Company  which  had  been  similarly  in- 
volved through  indorsement  of  paper  of  the  Canada  Southern  Rail- 
road. Then  followed  a  number  of  smaller  stock-brokerage  houses, 
but  even  yet  the  situation  was  not  recognized  as  one  of  real  calamity. 

The  immediate  responsibility  for  what  developed  into  the  great- 
est economic  catastrophe  known  in  this  country  up  to  that  time,  rests 
with  some  of  the  minority  partners  of  Jay  Cooke  and  Company — the 
firm  that  had  financed  the  Civil  war  after  other  bankers  and  the 
Treasury  Department  itself  had  failed  in  an  effort  to  float  a  suffi- 
cient quantity  of  government  bonds  to  meet  immediate  expenses. 
Through  its  close  connection  with  the  securities  of  the  United  States 
and  the  long  and  most  highly  respected  financial  career  of  Jay  Cooke 
himself,  this  house  had  come  to  be  known  as  a  pillar  of  financial 
strength. 

Jay  Cooke  and  Company  had  involved  itself  rather  deeply  in 
promoting  the  great  Northern  Pacific  Railroad.  In  this  venture  Mr. 
Cooke  himself  had  every  confidence,  but  because  much  of  the  road 
ran  through  territory  not  yet  settled  his  partners  did  not  always 
share  his  great  enthusiasm.  Rumors  spread  from  time  to  time  dis- 
crediting the  financial  success  of  the  road  and,  as  a  result,  cast  reflec- 
tions on  the  strength  of  Jay  Cooke  and  Company.  Consequently, 
when  on  the  morning  of  September  18  a  number  of  bankers  met  with 
and  questioned  one  of  Mr.  Cooke's  minority  partners,  he,  without 
consulting  his  chief,  decided  that  it  was  best  to  close  the  doors  of 
the  firm.  When  Mr.  Cooke  himself  arrived  on  the  scene  a  little 
later,  he  was  amazed  at  what  had  taken  place.  Under  no  circum- 
stances woidd  he  have  permitted  such  a  thing  to  happen  had  he  been 
consulted.  The  firm  at  that  moment  had  assets  worth  twice  its  lia- 
bilities, it  was  not  overlv  involved  in  Northern  Pacific  financing,  and 
Mr.  Cooke  personally  owned  large  holdings  of  real  estate  which  were 
unencumbered  and  which  he  would  gladly  have  turned  over  to  the 
house  in  order  to  save  it.  Similarly,  other  partners  in  the  firm  were 
possessed  of  large  fortunes  available  to  the  needs  of  the  house.  He 
arrived  too  late,  however,  to  avert  the  catastrophe  which  the  unwise 
act  of  a  minority  partner  had  now  brought  upon  the  country. 


228  FINANCING  AN  EMPIRE 

When  the  news  of  the  closing  of  Jay  Cooke  and  Company — 
September  18,  1873 — was  first  spread,  nobody  would  believe  it  could 
be  true.  In  New  York  a  special  announcement  had  to  be  made  from 
the  floor  of  the  Stock  Exchange  before  it  would  be  accepted  as  fact. 
This  announcement,  it  is  said,  was  followed  by  a  short  silence,  and 
then  there  arose  an  uproar  which  soon  spread  throughout  the  coun- 
try. Everywhere  it  was  felt  that  when  the  house  of  Jay  Cooke  and 
Company  could  fail  the  country  was  all  but  doomed.  As  messengers 
ran  with  the  story  of  ruin,  stocks  all  down  the  line  fell  at  a  tremen- 
dous rate.  Western  Union  lost  ten  points  in  as  many  minutes.  No 
one  bothered  to  deal  in  fractions  in  his  great  haste  to  sell  his  hold- 
ings. It  is  said  that  in  Philadelphia  the  report  was  believed  so  pre- 
posterous that  a  little  newsboy  who  shouted  "Extra — All  about  the 
failure  of  Jay  Cooke,"  was  arrested. 

The  following  day  proved  to  be  another  "Black  Friday"  for,  once 
the  house  of  Cooke  had  gone  under,  there  was  nothing  longer  to  sus- 
tain others  involved  in  railroad  financing. 

Upon  receipt  of  the  news  of  the  failure  of  Jay  Cooke  and  Com- 
pany Chicago  real  estate,  which  had  been  speculated  in  so  actively 
since  the  fire,  proceeded  to  decline.  Along  with  this  decline  came 
a  drop  in  real  estate  securities  all  over  the  country.  Then  followed 
confusion  everywhere.  Deposits  were  withdrawn  from  the  banks 
and  at  the  same  time  country  banks  were  calling  for  funds  to  tide 
them  over.  The  bankers  of  New  York,  Boston,  and  Philadelphia  did 
not  resort  to  the  suspension  of  specie  payments  during  this  panic 
because  specie  payments  had  never  been  resumed  after  the  Civil 
war.  But,  on  September  26,  1873,  they  did  find  themselves  com- 
pelled to  suspend  c>sh  payments,  largely  because  of  the  natural 
tendency  of  small  depositors  to  call  for  greenbacks  and  national  banii 
notes  in  order  that  they  might  hoard  them.  Clearing  House  loan 
certificates  and  certified  checks  were  resorted  to.  In  many  instances 
this  simply  amounted  to  a  refusal  to  cash  checks  for  large  amounts 
and,  instead,  the  banks  would  stamp  them  "payable  through  the 
Clearing  House."  When  thus  certified  and  indorsed  these  checks 
became  a  medium  of  exchange  which  passed  through  many  hands 
before  being  deposited.  On  the  whole  the  suspension  was  not  as 
complete  as  in  the  later  panics  of  1893  and  1907,  for  many  banks 
continued  to  cash  small  checks  for  their  customers. 

At  a  meeting  that  lasted  far  into  the  night,  Chicago  bankers  had 
all  but  decided  to  follow  the  example  of  eastern  banks  in  the  sus- 


HISTORY  OF  BANKING  IN  ILLINOIS  220 

pension  of  currency  payments  when  George  Sturges,  President  of 
the  Northwestern  National  Bank,  and  Chauncey  B.  Blair,  Presi- 
dent of  the  Merchant's  National,  this  time  aided  by  Solomon  A. 
Smith,  President  of  the  Merchant's  Savings,  Loan  and  Trust  Com- 
pany, once  more  protested.  The  bold  policy  these  men  had  urged 
at  the  time  of  the  fire  had  worked  out  so  well  that  they  believed  it. 
should  be  resorted  to  again.  This  time  they  meant  to  rely  on  the 
technically  strong  position  of  the  city  as  the  country's  chief  depot 
of  food  supplies.  They  even  went  so  far  as  to  declare  that  no  mat- 
ter what  the  others  might  do,  their  banks  would  continue  to  meet 
all  obligations  on  demand.  When  the  vote  was  taken,  Lyman  J. 
Gage  of  the  First  National  Bank  was  found  to  be  against  the  use 
^f  Clearing  House  Certificates,  thus  making  it  clear  that  the  major- 
ity opposed  the  move  for  suspension. 

Anxious  days  followed.  The  refusal  of  Chicago's  bankers  to 
follow  the  lead  of  the  east  brought  a  considerable  amount  of  unpleas- 
ant criticism  upon  the  city.  Some  sections  of  Illinois  did  not  con- 
form with  the  action  of  Chicago.  In  Bloomington,  Peoria,  and  Dan- 
ville it  was  decided  to  pay  only  small  checks  in  currency,  giving  certi- 
fied checks  for  larger  amounts,  but  just  what  constituted  a  small 
check  seems  never  to  have  been  agreed  upon.  Some  banks  paid  none 
larger  than  twenty-five  dollars  while  others  considered  a  check  for 
one  thousand  dollars  small.  On  at  least  one  occasion  newspapers 
announced  in  glaring  headlines  that  all  the  banks  in  Chicago  had 
suspended,  and  this  brought  about  a  run  on  the  banks  both  by  city 
and  country  depositors,  which  greatly  agitated  the  panic  in  Chicago. 

In  all  of  these  difficulties  the  bankers  of  Chicago  showed  a  splen- 
did spirit  of  mutual  helpfulness.  They  were  greatly  assisted  by  the 
fact  that  the  situation  here  was  never  so  serious  as  in  the  east  and 
the  need  for  Clearing  House  certificates  was  not  so  pressing.  The 
action  of  eastern  banks  had  sent  currency  up  to  a  premium  of  from 
one-fourth  of  one  per  cent  to  three  per  cent  over  certified  checks. 
Business  was  at  such  a  standstill  that  commodities  could  be  pur- 
chased very  cheaply  for  cash  in  Chicago.  Consequently,  people 
came  to  the  city  to  purchase  western  grain  at  low  prices  with  cur- 
rency which  was  at  a  premium.  As  much  as  a  quarter  of  a  million 
dollars  flowed  into  Chciago  from  this  source  in  a  single  day.  Crops 
that  year  had  been  large  and  the  demand  for  money  to  move  them, 
which  had  precipitated  the  panic  in  the  east,  now  caused  its  early  let- 
up in  the  west  to  which  that  money  belonged. 

Vol.  1—8 


230  FINANCING  AN  EMPIRE 

Although  the  acute  stage  of  the  crisis  was  of  only  short  duration, 
it  was  sufficiently  long  to  permit  the  suspension  of  a  number  of  na- 
tional banks  of  Chicago.  On  the  morning  of  September  26,  1873, 
five — the  Union,  Cook  County,  Second,  Manufacturers,  and  Na- 
tional Bank  of  Commerce — closed  their  doors.  Two  days  later  the 
Third  National  followed,  but  on  the  twenty-ninth  the  Union  and 
Cook  County  banks  resumed  business.  The  Union  National,  how- 
ever, was  able  to  survive  only  for  a  day  and  its  second  suspension  on 
the  thirtieth  gave  a  great  shock  to  the  confidence  of  the  people 
throughout  the  west.  This  bank  had  probably  had  one-third  of  all 
the  country  bank  deposits  held  in  Chicago.  Its  failure  may  have 
helped  settle  the  panic  condition,  as  it  reduced  the  demand  on  cur- 
rency by  just  that  much. 

William  F.  Coolbaugh,  president  of  the  Union  National  Bank, 
had  taken  great  pride  in  the  fact  that  his  was  the  largest  bank  in 
the  city  of  Chicago.  The  First  National,  which  for  many  years  stood 
out  as  the  largest,  had  not  yet  attained  that  enviable  position,  but  ran 
a  close  second  to  the  Union  National. 

Furthermore,  President  Coolbaugh  was  equally  prominent  for 
a  number  of  other  worthy  interests  and  activities,  not  least  among 
them  the  building  of  a  permanent  exposition  building  which  stood 
on  the  site  now  occupied  by  the  Art  Institute.  This  building  was 
completed  and  opened  to  the  public  with  great  ceremony  on  the  eve- 
ning of  the  day  upon  which  the  first  closing  of  the  Union  National 
Bank  occurred.  That  first  closing,  it  is  said,  had  been  voluntary  on  Mr. 
Coolbaugh's  part.  It  seems  that  his  bank  carried  a  deposit  amounting 
to  something  like  $1,400,000  which  belonged  to  the  county.  The  treas- 
urer announced  that  he  intended  to  withdraw  all  of  this  large  amount. 
Mr.  Coolbaugh  tried  to  dissuade  him  by  insisting  that  it  would  be  a 
Aery  unjust  action  in  times  so  strenuous,  but  the  treasurer  insisted, 
so  to  prevent  the  withdrawal  and  the  consequent  bad  effect  on  his 
bank,  Mr.  Coolbaugh  simply  ordered  the  doors  closed. 

That  very  evening  he  was  required  to  act  as  chairman  at  the  big 
opening  of  the  new  exposition  building  and  all  Chicago  marveled  at 
the  great  calm  and  apparent  happiness  with  which  he  performed  the 
duty.' 

That  day,  however,  ended  the  claim  of  the  Union  National  Bank 
to  first  place  in  Chicago  and,  as  Mr.  Coolbaugh  watched  its  affairs 
grow  less  and  less  stable  while  the  First  National  continued  to  grow 
in  strength  and  size,  he  found  life  increasingly  less  worth  enduring, 


HISTORY  OF  BANKING  IN  ILLINOIS  ►  231 

and  not  long"  thereafter  his  lifeless  body  was  found  at  the  foot  of  the 
Douglas  Monument  on  the  south  side  of  Chicago. 

The  speed  with  which  the  panic  ended  did  not  bring  any  real 
relief,  for  the  resulting  business  prostration  was  such  that  the  coun- 
try as  a  whole  did  not  recover  for  several  years — in  fact,  not  until 
after  the  resumption  of  specie  payments  on  January  1,  1870.  There 
was  a  long  period  in  which  it  was  difficult  to  get  enough  currency  to 
meet  business  obligations.  In  some  instances  store  orders  were  issued 
and  other  forms  of  local  currency  devised.  The  city  government  of 
Chicago  issued  five  and  ten  dollar  notes.  During  this  difficult  time 
twenty-one  banks  failed  in  Chicago  alone,  but  after  that  it  was  nine- 
teen years  before  there  was  to  be  another  bank  failure  in  the  city. 

In  an  address  given  before  the  Congress  of  Commerce  and  Fi- 
nance at  the  Chicago  World's  Fair  in  1893,  Lyman  Gage  of  the 
First  National  Bank  said: 

"After  the  panic  of  1873  I  visited  a  not  far  distant  town  of  mod- 
erate size,  and  from  the  most  important  merchant  in  the  place  1  heard 
this  story:  'For  a  week  or  ten  days  during  the  panic,'  he  said,  'busi- 
ness here  came  to  a  standstill.  We  did  absolutely  nothing.  But  one 
day  we  received  a  one-hundred  dollar  bill  by  express  from- a  distant 
town,  with  the  direction  to  credit  it  upon  the  open  account  of  the 
sender.  AVe  looked  at  the  bill  with  interest  and  curiosity,  and  after 
conferring  together,  concluded  to  send  it  to  Mr.  A  to  whom  we  owed 
a  small  account,  knowing  that  he  was  in  need.  About  three  o'clock 
in  the  afternoon  a  wagon  maker  in  the  village  came  into  our  office 
with  a  broad  smile  upon  his  face  and  said:  "I  am  glad  to  pay  you 
one  hundred  dollars  on  account.  It  is  the  first  money  I  have  seen  in  a 
good  while."  We  took  the  money  from  his  hand,  and  discovered  it  to 
be  the  same  note  we  had  received  by  express  in  the  morning.  We 
asked  him  where  he  got  it,  thinking  he  would  reply  that  he  received  it 
from  Mr.  A,  to  whom  we  had  paid  it.  He  informed  us  that  he  had  re- 
ceived it  from  Mr.  D.  We  then  followed  the  history  of  the  note  back, 
and  found  the  facts  to  be  that  it  had  paid  us  one  hundred  dollars  of 
debt  in  the  morning,  and  had  liquidated  six  other  debts  of  one  hun- 
dred dollars  each  during  the  day,  and  in  the  afternoon  it  had  come 
back  to  us,  liquidating  another  debt  of  one  hundred  dollars,  and  we 
still  had  the  note  on  hand  for  fresh  operations  tomorrow." 

Some  relief  came  from  the  Federal  government  which  purchased 
bonds  amounting  to  twelve  million  dollars  and  exchanged  several 
millions  of  currency  for  certificates  of  deposit.     Also,  in  January, 


232  FINANCING  AN  EMPIRE 

1874,  the  Secretary  of  the  Treasury  was  persuaded  to  issue  an  addi- 
tional twenty-six  million  in  legal  tenders  against  the  purchase  of  gov- 
ernment bonds.  Even  all  this,  however,  had  little  effect,  as  in  large 
part  the  bonds  purchased  came  from  savings  banks  and  so  the  funds 
set  free  did  not  reach  the  commercial  banks  where  they  were  most 
needed.  Nevertheless,  the  resulting  psychological  effect  was  itself 
of  great  benefit  to  commercial  institutions. 

For  five  years  there  was  much  unemployment,  commerce  was 
halted,  railroads  defaulted  in  interest  on  their  bonds,  receiverships 
were  frequent,  and  business  was  slow.  This  long  depression  reached 
every  line  of  activity,  and  soon  all  uses  for  money  began  to  disap- 
pear. Everybody  practiced  economy,  some  from  fear,  some  from 
habit,  and  some  because  of  a  real  lack  of  means.  Prices  were  low, 
profits  small,  and  but  few  new  enterprises  were  begun.  Idle  money 
in  appreciable  amounts  began  to  accumulate  in  the  banks. 

Meantime  there  had  grown  up  an  active  agitation  for  the  infla- 
tion of  currency  so  that  prices  might  be  increased  and  prosperity  re- 
turned. For  a  long  time  before  the  panic  the  government  had  been 
retiring  its  notes  and  thereby  contracting  the  currency.  Now  it  was 
urged  that  this  practice  not  only  be  discontinued,  but  that,  instead, 
more  money  be  issued.  It  is  possible  that  those  behind  this  policy 
were  right  in  a  measure  at  least,  for  the  temporary  relief  that  came 
had  largely  followed  a  yielding  to  these  wishes  on  the  part  of  the 
government.  The  pressure  was  particularly  strong  in  Congress  where 
many  members  were  business  men;  some  were  themselves  financially 
embarrassed  by  the  panic;  others  feared  for  the  business  houses  in 
which  they  had  an  interest ;  all  of  them  urged  more  money,  confident 
that  it  would  bring  the  needed  relief.  At  the  same  time,  their  con- 
stituents were  sending  them  innumerable  letters  each  day,  all  urg- 
ing paper  money.  They  remembered  the  good  times  during  the 
war  when  money  had  been  inflated  and  they  believed  that  an  increase 
in  its  supply  now  would  have  an  equally  exhilarating  effect.  Finally, 
they  succeeded  in  putting  a  bill  through  the  Senate  and  the  House 
increasing  the  amount  of  legal  tender  notes  to  $400,000,000  and  au- 
thorizing an  additional  issue  of  $46,000,000  in  bank  notes;  all  of 
which  was  to  be  distributed  to  the  banks  of  the  south  and  west.  How- 
ever, when  the  bill  reached  President  Grant  he  promptly  vetoed  it; 
in  part  this  action  broke  the  back  of  the  inflationists  and  at  the  same 
time  turned  the  government  to  a  sound  financial  policy. 

When  their  plans  for  securing  cheap  money  failed,  the  inflation- 


HISTORY  OF  BANKING  IN  ILLINOIS  233 

ists  next  turned  their  attention  to  the  coinage  of  silver,  but  in  this 
field  also  they  were  unsuccessful  so  far  as  their  immediate  needs 
were  concerned. 

In  the  midst  of  this  discontent  with  national  financing,  the  bank- 
ers of  Illinois  suddenly  came  to  a  realization  of  the  fact  that  the  old 
Free  Banking  Law  of  the  state,  which  it  was  generally  supposed  had 
been  repealed  back  in  1867,  had  as  a  matter  of  fact  not  been  repealed 
until  the  winter  of  1873,  nor  was  this  ruling  to  go  into  final  effect 
until  July  1,  1874.  Since  the  Free  Banking  Law  was  liberal  in  the 
extreme  and  granted  those  operating  under  it  privileges  that  could 
never  in  all  probability  be  obtained  under  any  other  legislation,  there 
was  a  great  rush  for  charters  during  the  last  week  in  June.  For  the 
most  part  these  charters  were  taken  out  by  speculators  who  hoped  to 
sell  them  at  a  great  profit,  but  as  there  were  five  years  of  extreme 
depression  still  to  follow,  it  is  not  likely  that  they  proved  to  be  as 
worth  while  as  had  been  hoped. 

National  Banks  in  Illinois 

(000  omitted) 

Year       Number       Loans  Deposits         Circulation 

1869  83  $32,924  $18,923  $  9,819 

1870  81  27,821  21,608  10,132 

1871  110  36,223  28,720  13,644 

1872  132  43,069  32,595  15,600 

1873  134  44,768  32,564  15,262 

From  this  table  it  may  be  seen  that  deposits  and  circulation  together  increased  sixty- 
five  per  cent  in  four  years.  The  expansion  of  bank  credit  in  Illinois  during  this  period 
showed  an  even  greater  growth  than  in  the  nation  as  a  whole.  (Centennial  History  of  Illi- 
nois, Vol.  4,  p,  276.) 


CHAPTER  XIII 

MONETARY  DEVELOPMENTS  FOLLOWING 

DEPRESSION 

Illinois  as  a  stronghold  for  the  " greenbackers" — Beginning  of  the  silver  agitation — 
Passing  of  the  Bland-Allison  Bill  for  remonetization  of  silver — Savings  Bank  crash 
of  1877 — Rise  of  the  Building  and  Loan  Association — Efforts  toward  regulation  of 
savings  banks — Settlement  of  the  question  regarding  position  of  the  United  States 
as  a  creditor — Panic  of  1884 — Revival  of  canal  agitation — Prosperity  of  1880  and  sub- 
sequent growth  of  banks — General  banking  law  of  1877. 

During  the  depression  that  followed  the  panic  of  1873  so  much 
factional  division  over  the  currency  arose  in  Illinois  as  to  break  party 
ties  and  permit  the  "Greenbackers,"  who  had  already  begun  the 
perfection  of  an  organization  elsewhere,  to  make  this  state  their 
stronghold.  About  the  currency  question  also  clustered  a  number 
of  banking,  bond,  land,  and  railroad  issues  that  made  the  farmers' 
organization  willing  to  merge  itself  into  the  greenback  movement. 
This  combination  soon  grew  into  the  "Greenback  Labor  Party,"  a 
fairly  strong  and  much  dreaded  organization. 

On  February  16,  187-1,  the  Greenbackers  called  an  independent 
convention  at  Decatur.  Two  hundred  and  ninety-nine  delegates, 
representing  sixty-five  counties  of  the  state,  were  present.  W.  C. 
V  lagg  of  Madison  County  was  chosen  to  lead  them  and  a  party  plat- 
form was  adopted,  the  chief  plank  of  which  read: 

"We  demand  the  repeal  of  the  Specie  Resumption  and  National 
Bank  Acts  and  the  substitution  of  legal-tender  paper  money  for 
the  National  Rank  circulation;  the  perfecting  of  a  monetary  system 
based  upon  the  faith  and  resources  of  the  nation  and  adapted  to  the 
demands  of  legitimate  business,  which  money  shall  be  a  legal-tender 
in  payment  of  all  debts,  public  and  private,  duties  on  imports  in- 
cluded, except  that  portion  of  the  interest  and  principal  of  the  pres- 
ent public  debt  that  is  by  the  express  terms  of  the  law  creating  it 
made  payable  in  metallic  money;  this  money  to  be  made  interchange- 

234 


HISTORY  OF  BANKING  IN  ILLINOIS  235 

able  at  the  option  of  the  holders  with  registered  Government  bonds 
bearing  a  rate  of  interest  not  exceeding  3.65  per  cent  per  annum." 

While  this  platform  drew  the  support  of  inflationists  in  both  the 
other  parties,  it  also  called  for  the  opposition  of  sound  money  men 
in  both. 

One  June  2,  1880,  the  Republican  National  Convention  met  in 
Chicago  and  a  week  later  the  Greenback  delegates  met  in  convention 
in  Chicago  also.  The  latter  nominated  James  B.  Weaver  of  Iowa 
for  President  and  E.  J.  Chambers  of  Texas  for  Vice-President.  In 
their  platform  was  now  incorporated  the  plank  adopted  by  the  Illi- 
lois  state  convention  of  187-t,  which  declared  that  legal  tender  cur- 
rency should  be  substituted  for  the  notes  of  national  banks.  Also 
it  was  declared  that  the  national  banking  system  should  be  abolished 
tnd  that  unlimited  coinage  of  silver  as  well  as  gold  be  established 
by  law. 

At  the  same  time  the  Illinois  members  of  this  group  nominated 
for  state  officers  for  Illinois,  Alson  J.  Streeter  for  Governor  and 
A.  M.  Adair  for  Lieutenant-Governor. 

In  spite  of  the  awe  the  Greenback  party  had  come  to  inspire,  the 
following  election  was  a  Republican  victory.  In  Illinois  the  Green- 
back vote  was  less  than  one-half  as  great  as  it  had  been  in  the  state 
election  two  years  before  and  of  the  nineteen  representatives  elected 
to  Congress,  thirteen  were  Republicans  and  six  Democrats.  Thus, 
the  Greenback  party  was  deprived  of  its  representation. 

Since  the  government  would  not  listen  to  the  clamor  aroused  by 
those  in  favor  of  paper  money,  the  inflationists  next  sought  to  ac- 
complish their  purpose  by  advocating  the  full  resumption  of  silver 
coinage  in  the  ratio  of  sixteen  to  one.  An  increased  production  of 
silver  in  the  western  states  had  so  decreased  its  price  that  those  inter- 
ested in  silver  mines  were  glad  to  add  their  weight  to  the  demand 
for  silver  coin  in  the  hope  that,  in  addition  to  giving  the  country 
cheap  money,  it  would  also  increase  the  demand  for  their  stocks  of 
metal. 

From  1834  up  to  the  time  of  the  Civil  war  the  mint  of  the  United 
States  had  been  opened  to  the  coinage  of  silver  dollars.  However, 
the  price  of  silver  was  such  that  for  much  of  this  time  the  metal  was 
worth  more  as  bullion  than  as  coin.  Consequently,  silver  dollars 
had  not  been  coined  and  by  the  early  seventies  the  silver  dollar  had 
become  practically  unknown.  When,  in  1873,  Congress  did  pass  a 
coinage  act  in  anticipation  of  an  eventual  return  to  a  specie  basis, 
it  naturally  omitted  all  provision  for  the  coinage  of  silver  dollars.    At 


236  FINANCING  AN  EMPIRE 

the  time  this  omission  was  taken  as  a  matter  of  course  and  attracted 
no  attention  until  a  few  years  later  when  the  heavy  output  of  silver 
mines  caused  the  price  to  decline.  Soon  the  cry  went  abroad  that 
the  price  of  silver  had  fallen  because  there  was  a  ban  on  the  coinage 
of  silver  dollars.  Western  politicians  incorporated  silver  planks  in 
their  platforms  and  for  the  next  twenty  years  denounced  the  "crime 
of  Seventy-Three." 

During  the  winter  of  1877-8  the  silver  discussion  in  Congress 
brought  about  intense  excitement  throughout  the  whole  country. 
The  "Crime  of  Seventy-Three"  was  talked  of  everywhere.  In  Illi- 
nois no  party  distinctions  could  be  made  on  this  question  as  all  par- 
ties firmly  took  issue  against  the  government's  "evil  conspiracy 
against  the  welfare  of  the  American  people."  No  matter  how  loudly 
Chicago  bankers  might  talk  against  the  silver  bill,  their  protests 
were  drowned  in  the  chorus  of  support  on  every  hand.  Everywhere 
in  the  state  it  was  firmly  believed  that  it  would  be  impossible  for  the 
country  to  recover  from  depression  while  its  money  continued  to 
rise  in  purchasing  power,  and  property  and  wages  to  decline. 
With  every  advance  in  the  gold  dollar  came  a  rise  in 
the  weight  of  debt  and  taxation,  while  wages  and  employment 
fell  off.  Feeling  in  the  west  was  bitter  against  the  east  where  a 
sentiment  for  sound  money  generally  prevailed.  Newspapers  de- 
nounced eastern  "gold-grabbers"  who,  they  said,  were  acting  the  part 
of  vampires,  sucking  the  life-blood  from  productive  enterprise.  At 
a  convention  held  in  Springfield  a  resolution  was  passed  which  said: 
"We  view  with  intense  indignation  the  efforts  now  being  made  by 
the  money  power  of  New  York  and  other  cities  of  the  east,  to  enforce 
public  opinion  in  the  west  and  south  upon  the  question  of  silver  re- 
monetization.  .  .  .  We  say  most  emphatically  that  the  honest 
convictions  of  the  people  of  this  section  of  the  Union  will  never  be 
surrendered  at  the  dictation  of  greedy  capitalists  and  bondholders, 
let  the  consequences  be  what  they  may.  The  dollar,  it  was  further 
said,  had  been  "surreptitiously"  withdrawn  from  the  currency  of 
the  nation  in  1873. 

Eventually  this  faction  won  what  was  then  considered  a  victory 
over  Wall  Street.  Remonetization  was  successfully  installed  and 
Illinois  rejoiced.  In  the  issue  of  March  1,  1878,  the  Chicago  Tribune 
said:  "For  the  first  time,  perhaps,  since  the  war,  there  has  been 
a  legislation  on  a  question  of  finance  which  has  not  been  inspired  by 
and  in  the  interest  of  those  who  live  by  gambling  in  money  and  pub- 


HISTORY  OF  BANKING  IN  ILLINOIS  237 

lie  securities."  The  Bland-Allison  Bill,  requiring  the  United  States 
to  purchase  annually  a  large  quantity  of  silver,  had  been  passed  over 
the  President's  veto. 

Actually  this  was  a  defeat  for  the  Greenbackers,  but  they  were 
able  to  rejoice  with  the  others  in  the  belief  that  in  the  long-  run  this 
act  would  result  in  a  victory  for  their  cause.  This  new  legislation, 
they  said,  would  bring  "honest"  money  and  harder  times  instead  of 
the  prosperity  their  inflated  paper  could  produce. 

Considering"  the  long  years  of  depression  interrupted  only  by 
occasional  flare-backs  to  the  panic  of  1873,  it  is  little  to  be  wondered 
that  so  much  agitation  for  currency  reform  existed.  In  June  of  1877 
one  of  the  most  serious  of  the  small  crises  of  the  period  occurred  in 
the  form  of  what  was  known  as  the  savings  bank  crash  of  Chicago. 

Such  savings  banks  as  existed  in  the  state  at  this  time  were  largely 
relics  of  the  old  state  charters  granted  before  the  national  system 
went  into  effect.  These  banks,  along-  with  all  others,  had  found  in- 
creasingly good  business  after  the  fire,  but  unlike  the  commercial 
institutions,  the  savings  banks  had  also  benefited  by  the  panic  of 
1873.  When  that  crisis  brought  a  decline  in  real  estate  and  real 
estate  securities,  money  intended  for  such  investments  was  put  into 
savings  instead.  In  order  to  attract  as  large  an  amount  of  these 
funds  as  possible,  the  banks  were  paying  as  high  as  six  per  cent  to 
depositors,  a  rate  which  could  not  easily  be  earned  with  any  degree 
of  safety  in  the  long  years  of  depression  that  followed.  Further- 
more, by  now  the  market  was  so  sensitive  that  a  run  instituted  on  the 
savings  banks  of  St.  Louis  created  great  alarm  in  many  other  cities. 
In  Chicago  the  situation  was  particularly  acute,  and  in  1877  eight 
banks  failed — the  Merchants,  Farmers  and  Mechanics  Savings  Bank, 
which  was  looted  by  its  president  and  cashier  so  that  it  could  pay 
only  ten  per  cent  to  its  depositors;  the  Fidelity  Savings  Bank;  the 
Third  National  Bank;  the  Central  National;  the  German-American 
Savings  Bank;  the  German  National;  the  German  Savings  Bank; 
and  Henry  Greenebaum  and  Company;  all  of  the  last  three  being 
under  one  management.  Where  the  savings  banks  were  established 
as  departments  of  commercial  banks,  the  savings  end  of  the  busi- 
ness was  generally  subordinate  to  all  others  and,  accordingly,  ex- 
posed to  all  the  risks  of  ordinary  banking. 

As  a  rule  the  savings  banks  catered  chiefly  to  people  drawing 
wages  and  small  salaries,  consequently  their  downfall  was  a  great 
shock  to  the  communitv  and  for  some  time  thereafter  few  could  be 


238  FINANCING  AN  EMPIRE 

found  who  had  sufficient  confidence  in  these  institutions  to  entrust 
them  with  their  money.  The  savings  of  the  people  were  diverted 
into  another  type  of  institution — the  building  and  loan  association 
— which  soon  came  into  great  popularity  throughout  the  city.  The 
first  of  these  had  been  established  in  Chicago  in  1869,  but  not  until 
after  the  savings  bank  crash  did  such  organizations  come  into  real 
prominence  and  even  then  did  not  reach  their  height  until  a  law 
regulating  them  was  passed  in  1879.  After  that  their  growth  was 
rapid  in  all  parts  of  the  state. 

Since  some  few  savings  banks  survived  the  crash,  there  was  set 
up  a  popular  demand  for  legislation  regulating  these  institutions, 
but  it  was  ten  years  before  anything  was  done.  Then  the  assembly 
passed  an  act  for  the  formation  of  savings  banks  by  any  thirteen  or 
more  citizens  of  the  state,  two-thirds  of  whom  should  reside  in  the 
county  where  the  proposed  bank  was  to  be  located.  The  trustees 
were  to  own  unencumbered  real  estate,  worth  in  the  aggregate  at 
least  one  hundred  thousand  dollars,  situated  in  the  county  where 
the  bank  was  to  be  established.  No  trustee  was  permitted  to  accept 
pay  for  his  services  or  to  borrow  from  the  bank,  and  limitations  were 
set  on  the  investments  that -could  be  made  with  deposits.  Also,  it 
was  provided  that  the  aggregate  deposit  received  from  any  one  per- 
son must  be  limited  to  three  thousand  dollars.  Banking  powers  of 
discount  were  prohibited.  Annual  reports  had  to  be  made,  and 
there  was  to  be  a  biennial  examination  by  the  superintendent  of 
banking. 

Within  two  years  following  the  passage  of  this  law,  two  savings 
banks  were  organized — the  Decatur  Mutual  Savings  Association 
and  the  Chicago  Society  for  Savings.  Before  there  was  time  to  prove 
the  usefulness  of  the  act,  however,  it  \vas  declared  unconstitutional 
because  it  had  not  been  submitted  to  the  people  for  vote  as  required 
by  the  constitution.  This  detail  had  been  neglected  because,  since 
the  act  prohibited  these  associations  from  exercising  ordinary  bank- 
ing powers,  the  legislature  did  not  consider  it  properly  a  banking 
act.  At  the  time  the  act  was  passed.  Governor  Oglesby  at  first  con- 
sidered a  veto,  as  it  was  not  to  be  put  before  the  people,  but  later  he 
decided  that  the  legislature  was  right  and  it  was  unnecessary  to  sub- 
mit the  bill  to  a  vote. 

There  has  been  no  provision  made  since  that  time  for  the  organ- 
ization of  savings  banks  in  Illinois  and  but  few  institutions  devoted 
entirely  to  savings  are  in  existence  in  the  state. 


HISTORY  OP  BANKING  IN  ILLINOIS  .  239 

Largely  because  of  the  crash  of  savings  banks  in  1877,  the  leg- 
islature of  1879  passed  an  act  providing  that  if  any  banker  received 
money  or  other  valuable  article  transferable  by  delivery  for  deposit 
when  the  bank  was  insolvent  he  should  be  deemed  guilty  of  embez- 
zlement. Furthermore  this  act  provided  that  the  taking  of  a  deposit 
within  thirty  days  before  the  failure  of  a  bank  would  constitute  evi- 
dence of  intention  to  defraud. 

Another  outgrowth  of  panic  conditions  in  Chicago  was  national 
in  its  scope  and  forever  settled  the  question  of  the  government's  posi- 
tion as  a  depositor  in  failed  banks.  Of  the  banks  which  failed  in 
Illinois  during  this  period  a  number  had  been  depositories  of  govern- 
ment funds.  Under  the  National  Bank  Act  it  was  required  that  a 
pro  rata  distribution  of  realized  assets  of  failed  institutions  should  be 
made  among  all  creditors.  In  spite  of  this,  the  Treasurer  of  the 
United  States  raised  the  question  as  to  whether  an  old  law  of  1797 
making  the  United  States  a  preferred  creditor  in  the  case  of  bank- 
rupts did  not  continue  to  apply  to  insolvent  national  banks.  In  1882 
this  was  taken  to  the  United  States  Supreme  Court  in  connection 
with  the  case  of  the  Cook  County  National  Bank  of  Chicago,  with 
the  resulting  decision  that  the  United  States  was  not  a  preferred 
creditor  of  an  insolvent  national  bank. 

The  long  siege  of  depression  had  somewhat  abated  with  the  re- 
sumption of  specie  payments  in  1879,  but  recovery  was  so  slow  that 
there  again  occurred  a  noticeable  slackening  of  the  speed  of  busi- 
ness in  1882,  which  settled  down  into  increased  depression  during 
the  next  year  and  culminated  in  another  panic  in  1884.  In  Chicago, 
moreover,  the  large  liabilities  of  1883  made  that  year  even  more 
serious  than  the  one  of  actual  panic.  There  were  runs  of  not  very 
great  importance  on  some  of  the  Chicago  banks,  although  no  serious 
consequences  resulted.  No  national  bank  failure  occurred  in  Chi- 
cago and  only  two  in  other  parts  of  the  state — the  First  National  of 
Monmouth  and  the  Farmer's  National  of  Bushnell.  These  two  fail- 
ures resulted  from  a  general  shrinkage  of  values  which  occurred  not 
only  in  Illinois  but  also  throughout  the  country.  In  1885  a  quick 
recovery  set  in  and  business  became  fundamentally  sound. 

The  railroad  development  which,  in  part  at  least,  had  been  re- 
sponsible for  the  panic  of  1873  and  the  long  depression  following, 
was  destined  to  bring  the  Illinois-Michigan  Canal,  which  had  played 
so  active  and  often  tragic  a  part  in  the  financial  history  of  the  state, 
into  prominence  once  more. 


240  FINANCING  AN  EMPIRE 

During  the  years  1873  and  1874,  Chicago  received  12,425,705 
bushels  of  wheat  by  way  of  the  Canal,  but  in  the  same  period  16,279,- 
634  bushels  entered  the  city  over  the  Rock  Island  railroad  alone.  It 
was  plain  that,  in  spite  of  all  that  might  be  said  in  favor  of  the  trans- 
portation of  freight  by  water,  the  railroads  were  getting  the  busi- 
ness in  the  Canal's  territory.  A  spirited  contest  started  between  the 
two  routes  and,  although  transportation  over  the  Canal  was  urged 
vigorously,  its  share  of  business  rapidly  fell  off.  Even  the  General 
Assembly  which  convened  January  5,  1881,  had  come  to  think  the 
Canal  of  so  little  use  as  not  to  pass  any  legislation  for  its  assistance. 
Next  year,  the  Governor  called  a  special  session  which  sat  from 
March  23  to  May  6  in  the  hope  that  something  might  be  done,  but 
when  the  canal  question  was  placed  before  the  people  a  large  majority 
voted  to  cede  the  Canal  to  the  Federal  government  as  a  part  of  a 
lakes-to-gulf  waterway. 

On  August  17,  1871,  the  Canal  had  been  turned  over  to  the  state 
with  all  debts  paid  and  a  balance  of  $92,100  to  its  credit.  This  credit 
was  rapidly  absorbed,  and  after  1880  only  deficits  were  shown.  As 
a  result,  all  efforts  on  behalf  of  the  friends  of  the  Canal  to  increase 
its  size  or  in  other  ways1  to  improve  it,  were  met  with  scant  enthusi- 
asm and  even  those  in  favor  of  such  improvements  could  offer  only 
weak  excuses  for  making  them.  For  a  time  the  Canal  succeeded 
in  holding  a  rather  steady  amount  of  tonnage,  but  as  the  shipments 
in  the  state  as  a  whole  were  rapidly  increasing,  this  meant  that  the 
Canal  was  losing  out  at  a  fairly  rapid  rate.  The  whole  story  is 
rather  adequately  shown  in  the  following  table: 

Operations  on  the  Illinois  and  Michigan  Canal,  1870-1893 

Gross  Surplus 

Expenses  Tolls  or  Deficit 

$108,695  $149,635  $40,940  Surplus 

74,511  107,081  32,570  Surplus 

125,601  92,296  33,405  Deficit 

86,393  66,800  19,593  Deficit 

75,125  55,112  20,013  Deficit 

59,522  38,702  20,820  Deficit 

As  soon  as  the  first  signs  of  a  permanent  recovery  began  to  man- 
ifest themselves  in  1879,  business  developed  so  rapidly  that  in  1880 
bank  deposits  in  Chicago  alone  amounted  to  $64,764,000,  as  against 

»  After  1872  the  table  includes  clearances  from  the  locks  at  Henry  and  Copperas  Creek 
on  the  Illinois  River.     (Centennial  History,  4:348.) 


Boats 

Clear- 

Tons 

Year 

Running 

ances 

Transported 

1870 

179 

2,902 

585,975 

1875a 

142 

3,554 

670,025 

1880 

133 

4,536 

751,360 

1885 

135 

3,990 

827,355 

1890 

104 

2,920 

742,392 

1893 

82 

2,452 

529,816 

HISTORY  OP  BANKING  IN  ILLINOIS  .„  241 

approximately  $47,000,000  in  the  previous  year.  Clearing  house  re- 
turns showed  an  increase  of  nearly  five  hundred  million  in  that  year 
and  of  five  hundred  and  twenty-five  million  in  the  next.  As  early 
as  1880  Chicago  had  reached  second  place  in  amount  of  deposits 
among  the  hanking  centers  of  the  country  and  in  1881  she  was  still 
more  prosperous. 

Banks  were  by  this  time  finding  it  to  their  advantage  to  increase 
their  capital  and  did  so  to  such  an  extent  that  clearing-house  insti- 
tutions alone  increased  their  stock  by  $3,800,000  in  the  year  1881. 
In  1882  clearing  house  returns  increased  by  $137,439,400,  and  the 
next  year  nearly  every  bank  of  consequence  in  Chicago  paid  stock- 
holders dividends  ranging  from  ten  to  fifteen  per  cent  and  also  added 
liberal  balances  to  surplus  accounts.  By  1884,  even  though  the  city 
was  not  yet  fifty  years  old,  Chicago  could  boast  the  fourth  largest 
financial  institution  in  the  whole  country.  Banking  business  had 
become  so  good  that  the  Metropolitan  National  Bank,  organized  in 
1884,  was  able  to  pay  its  first  dividend  in  less  than  nine  months'  time. 
Practically  speaking,  there  was  no  national  or  state  chartered  bank 
not  paying  substantial  dividends. 

Again  in  1885  a  number  of  the  larger  institutions  increased  then- 
capital — nor  was  this  an  indication  of  inflation,  but  rather  of  a  steady 
business  growth  resulting  from  sound  management  and  an  ever  grow- 
ing tendency  of  eastern  business  to  pass  through  the  hands  of  Chi- 
cago's bankers. 

Since,  at  the  time  of  the  installation  of  national  banks*  Illinois 
had  become  so  thoroughly  disgusted  with  her  efforts  at  creating 
state  banks  as  to  have  been  practically  without  a  banking  system  and 
was  therefore  ready  to  support  the  new  national  institutions  to  the 
utmost,  it  is  interesting  to  see  with  what  splendid  hospitality  she 
continued  to  receive  national  banks.  Although  many  private 
institutions  had  by  now  received  charters  under  the  state,  still,  in 
large  part,  the  commercial  banking  of  Illinois  was  done  under  na- 
tional charters.  The  following  table  shows  the  growth  of  such  insti- 
tutions in  ten-year  periods  from  the  close  of  the  Civil  war: 

National  Banks  in  Illinois,  1867-1891 


Year 

Number. 

Capital. 

Deposits. 

Circulation. 

1867 

82 

$11,620,000 

$19,181,114 

$9,485,023 

1877 

144 

18,046,000 

33,469,893 

9,038,398 

1887 

178 

29,391,500 

83,409,526 

5,036,455 

1891 

202 

36,376,000 

118,119,492 

5,170,352 

242  FINANCING  AX  EMPIRE 

Of  all  the  events  that  occurred  in  the  period  after  the  panic  of 
1873,  that  of  greatest -import  to  the  hanks  of  Illinois  occurred  on 
June  16,  1887,  when  the  General  Assembly  passed  the  first  general 
banking  law  that  had  been  enacted  since  the  adoption  of  the  consti- 
tution of  1870.  This  law,  ratified  by  the  citizens  of  Illinois  at  the 
subsequent  election,  included  the  following  provisions  for  the  fu- 
ture banking  of  the  state: 

Permission  to  establish  a  bank  must  be  secured  from  the  audi- 
tor of  public  accounts  who,  before  giving  his  consent,  must  first 
make  a  thorough  examination  and  satisfy  himself  that  those  apply- 
ing would  endeavor  to  establish  a  properly  managed  bank.  Once 
convinced  of  the  integrity  and  ability  of  the  organizers  of  the  pro- 
posed banking  association,  the  state  auditor  might  issue  a  certificate 
permitting  the  bank  to  begin  business. 

These  banks  were  to  be  organized  for  the  purposes  of  discount 
and  deposit,  to  buy  and  sell  exchange,  and  do  a  general  banking 
business.  They  might  loan  money  on  personal  and  real  security 
and  accept  and  execute  trusts. 

Each  shareholder  was  to  be  held  individually  responsible  for  all 
debts  of  the  bank  up  to  the  amount  of  his  stock  holdings  at  par  in 
addition  to  the  amount  he  had  invested  in  such  stock. 

The  state  auditor  was  to  examine  the  affairs  of  each  bank  as 
often  as  he  deemed  necessary,  and  not  less  often  than  once  each  year. 

These  banks  might  not  own  real  estate,  except  for  the  purposes 
of  their  -business  and  to  secure  debts,  and  might  not  carry  any  of 
that,  except  the  banking  house  itself,  for  more  than  five  years  after 
acquiring  title. 

No  borrower  might  have  more  than  the  equivalent  of  one-tenth 
part  of  the  amount  of  the  actually  paid-in  capital  of  the  bank,  ex- 
cept that  the  discount  of  bills  of  exchange  against  existing  values  and 
of  commercial  business  paper  need  not  be  considered  as  money  bor- 
rowed. All  banks  in  towns  of  less  than  five  thousand  inhabitants 
must  have  a  capital  stock  of  not  less  than  twenty-five  thousand  dol- 
lars. Fifty  thousand  dollars  in  capital  was  required  of  banks  in 
communities  having  a  population  up  to  ten  thousand. 

When  the  capital  of  a  bank  became  impaired,  it  was  the  duty  of 
the  state  auditor  to  give  notice  to  the  officers  to  have  the  impairment 
made  good  by  the  assessment  of  stockholders  or  the  reduction  of  cap- 
ital stock.     Should  the  bank  fail  to  make  such  settlement  or  rednc- 


HISTORY  OF  BANKING  IN  ILLINOIS  213 

tion,  the  state  auditor  might  sue  the  stockholders  and  compel  pay- 
ment or  wind  up  the  affairs  of  the  hank,  as  he  saw  fit. 

All  corporations  with  hanking*  powers  existing  hy  virtue  of  spe- 
cial charters  were  made  subject  to  the  provisions  of  this  act.  There 
were  then  twenty-six  such  hanks  in  the  state  as  follows: 

Name                                                  Location  Capital 

Alton  Savings  Bank Alton $    100,000 

Bank  of  Illinois Chicago   100,000 

Belleville  Savings  Bank Belleville 150,000 

Chicago  Trust  and  Savings  Bank Chicago 350,000 

Corn  Exchange  Bank  of  Chicago Chicago   1,000,000 

Dime  Savings  Bank Chicago 69,475 

Enterprise  Savings  Bank Cairo    50,000 

Home  Savings  Bank Chicago   5,000 

Illinois  Trust  and  Savings  Bank Chicago   1,000,000 

International  Bank Chicago   486,000 

Xorthwestern  Bond  and  Trust  Company. Chicago   100,000 

Peoples  Bank  of  Kockford . .  Rockf ord 125,000 

Pullman  Loan  and  Savings  Bank Pullman 100,000 

Springfield  Marine  Bank Springfield 85,500 

East  St.  Louis  Bank East  St.  Louis. .  40,000 

Elgin  City  Banking  Co Elgin 60,000 

Farmers'  and  Mechanics'  Bank Galesburg 100,000 

Hibernian  Banking  Association Chicago 111,000 

Merchants  Loan  and  Trust  Co Chicago   2,000,000 

Moline  Savings  Bank Moline none 

Montgomery  County  Loan  and  Trust  Co.Hillsboro 50,000 

People's  Bank  of  Bloomington Bloomington  .  .  .  100,000 

Sangamon  Loan  and  Trust  Company.  .  .  Springfield 58,323 

Union  Trust  Company Chicago   500,000 

Workingmen's  Banking  Company East  St.  Louis.  .  50,000 

Western  Trust  and  Savings  Bank Chicago 100,000 


Total   $6,890,298 

After  the  act  had  been  voted  upon  by  the  people,  it  was  discovered 
that  no  provision  had  been  made  for  the  establishment  of  banks  in 
cities  of  more  than  ten  thousand  inhabitants.  The  next  year,  there- 
fore, an  amendment  was  added  providing  that  in  cities  of  from  ten 
to  fifty  thousand  population,  banks  must  have  a  minimum  capital  of 
one  hundred  thousand  dollars  and  in  cities  of  over  fifty  thousand, 
two  hundred  thousand  dollars  in  capital  was  required.  Also,  this 
amendment  required  that  each  director  must  hold  in  his  own  name 

(Report  of  the  Auditor  of  Public  Accounts,  1890,  1:13  if;  Laws  of  1887,  p.  89  ff.) 


244  FINANCING  AN  EMPTRE 

at  least  ten  shares  of  stock  in  the  bank  with  a  par  value  of  one  hundred 
dollars  a  share.     (Laws  of  1889,  pp.  58-59.) 

This  law,  which  first  went  into  effect  on  December  6,  1888,  is 
in  all  essentials  the  one  under  which  the  state  still  operates.  In  many 
respects  it  follows  the  main  features  of  the  National  Bank  Act,  but 
permits  a  wider  range  of  business.  Because  of  its  many  attractive 
features  it  largely  put  an  end  to  private  banking  and  also  created 
a  tendency  for  new  banks  to  organize  under  it  rather  than  under  the 
more  limited  national  act. 

The  same  legislature  which  passed  the  general  banking  act  also 
passed  an  act  providing  for  the  organization  of  trust  companies.  It 
contained  the  following  provisions: 

Any  corporation  organized  under  the  laws  of  the  state  for  the 
purpose  of  accepting  and  executing  trusts  may  be  appointed  assignee, 
or  trustee  and  executor. 

The  amount  of  money  which  such  corporation  may  have  on  de- 
posit at  any  time  shall  not  exceed  ten  times  its  paid-up  capital  and 
surplus  and  its  outstanding  loans  must  not  exceed  that  amount. 

Before  accepting  any  appointment  or  deposit,  each  company  must 
deposit  with  the  auditor  of  public  accounts,  $200,000  in  stocks  of  the 
United  States  or  of  Illinois,  or  in  approved  mortgages  on  real  estate. 
In  1897  this  section  was  amended  to  provide  for  a  deposit  with  the 
state  auditor  of  securities  worth  $200,000  in  cities  of  over  one  hundred 
thousand  and  for  those  with  a  smaller  population,  only  fifty  thousand 
dollars  was  required.  Also,  provision  was  made  for  larger  deposits 
in  case  the  estates  held  exceeded  ten  times  the  amount  thus  deposited. 
(Laws  of  1897,  p.  187.) 

Each  company  must  procure  a  certificate  of  authority  from  the 
Auditor  of  Public  Accounts  before  accepting  any  trust  or  deposit. 
Annual  reports  and  examinations  must  be  made  and  more  frequent 
reports  might  be  called  for. 

During  the  first  few  years  after  the  ratification  of  the  state  bank- 
ing law  state  banks  increased  rapidly  in  number  and  capital,  loans 
and  deposits.  By  November,  1890,  fifty-four  permits  for  organiza- 
tion had  been  issued  and  twenty-four  banks  were  operating.  Loans 
and  discounts  totaled  $48,025,615  and  the  combined  capital  of  the 
banks  was  $10,212,500.  (Auditor's  Report,  1890,  p.  14;  1892,  p.  14.) 
Two  years  later  one  hundred  and  ten  permits  had  been  issued  and 
loans  and  discounts  had  risen  to  an  amount  of  $70,647,599.  The  com- 
bined capital  was  then  $17,512,500. 


CHAPTER  XIV 
THE  PANIC  OF  1893 

Universal  depression  of  1890 — Boom  of  1892 — Concentration  of  funds  in  large  cities — 
Panic  of  1893 — Dwiggins'  system — Run  on  the  Illinois  Trust  and  Savings  Bank — 
Issuing  of  Clearing  House  certificates — Chicago  again  remained  on  a  cash  basis — 
National  finances — Repeal  of  the  silver  purchase  act — Growth  of  the  silver  contro- 
versy— Break-down  of  banks — Savings  Bank  run — James  H.  Eckels. 

After  the  orgy  of  "Greenbackism,"  the  common  sense  of  the 
nation  again  asserted  itself  and  by  1880  the  country  was  on  the  uphill 
grade  to  prosperity.  This  boom,  as  usual,  was  overworked  and  a 
period  of  tight  money  and  declining  values  prevailed  between  1883 
and  1886,  but  the  banks  managed  to  pull  out  of  the  tight  places  and 
the  country  again  found  prosperity  and  speculation  developed  which 
was  bound  to  lead  to  another  great  panic. 

A  money  stringency  which  settled  on  the  country  in  1890,  follow- 
ing the  failure  of  Baring  Brothers — a  famous  London  banking  house 
— while  not  recognized  as  such,  was  the  real  forerunner  of  the  panic 
of  1893.  In  that  year  agricultural  interests  were  in  an  unsatisfactory 
condition.  Overtrading  and  unhealthful  expansion  were  apparent 
everywhere.  Railroad  expansion  was  forcing  large  amounts  of  securi- 
ties on  the  market  and  developments  in  the  west  and  middle  west 
were  taking  investment  capital  away  from  the  east.  Legitimate 
manufacturing  and  other  commercial  enterprises  were  deprived  of 
funds  needed  for  their  development  so  that  vast  speculative  ventures 
might  go  on.  Banks,  too  wise  themselves  to  invest  in  speculations, 
were  nevertheless  indirectly  involved  through  the  investments  of  their 
customers. 

Meantime,  conditions  abroad  had  not  been  far  different  from  those 
at  home.  Because  of  speculative  demands  in  Europe,  large  amounts 
of  American  securities  held  by  Europeans  were  forced  on  the  New 
York  market.  Next,  the  French  Panama  Canal  Company,  the 
French  Copper  Company,  and  Baring  Brothers  failed  and  forced 

245 


246  FINANCING  AN  EMPIRE 

the  countries  of  Europe  through  a  period  of  liquidation  and  loss, 
resulting  in  the  dumping  of  more  American  securities  on  the  New 
York  market  with  a  consequent  drain  on  the  hanks  of  that  city.  Be- 
tween these  foreign  withdrawals  and  the  demands  of  interior  banks, 
the  monetary  stringency  became  so  severe  that  the  Secretary  of  the 
Treasury  almost  completely  exhausted  the  treasury  funds  in  an  en- 
deavor to  relieve  it.  Between  July  and  November,  1890,  more  than 
ninety  million  dollars  of  government  funds  were  disbursed  by  the 
purchase  of  United  States  bonds  and  the  payment  of  interest  on 
them.  This  action  on  the  part  of  the  Treasury,  together  with  a  volume 
of  clearing  house  certificates  issued  in  New  York,  Boston,  and  Phila- 
delphia, restored  confidence  and  brought  a  temporary  return  to  nor- 
mal before  the  end  of  the  year. 

By  1892  business  transactions  throughout  the  country  had  reached 
a  greater  volume  than  in  any  previous  year.  Bank  clearings  exceeded 
those  of  1891  by  nine  and  one-tenth  per  cent  and  the  foreign  trade 
movement  was  larger  than  ever  before. 

In  the  west  where  great  developments  had  been  going  on  for 
many  years,  prosperity  was  more  than  ever  evident.  In  Chicago 
monev  was  so  easy  in  1892  that  bankers  found  great  difficulty  in 
keeping  their  funds  employed.  As  against  less  than  sixty-six  million 
of  deposits  held  by  national  banks  in  the  state  of  Illinois  at  the  close 
of  188.5,  one  hundred  and  twenty-six  million  dollars  were  held,  accord- 
ing to  a  report  of  December  9,  1892.  At  the  same  time  state  banks 
and  trust  companies  authorized  under  the  law  of  1887  had  sprung 
up  with  marvelous  rapidity  and  in  place  of  the  fifty  institutions  re- 
ported in  1890,  there  were  one  hundred  and  ten  in  the  state  toward 
the  close  of  1892. 

So  prosperous  were  the  banks  of  the  west  that,  according  to  the 
Bankers'  Magazine  of  September,  1892,  Chicago  in  all  probability 
boasted  the  largest  national  bank  in  the  country — the  First  National 
which  then  had  a  capital  of  three  million,  surplus  of  $3,100,000,  de- 
posits of  thirty  million,  and  was  at  the  time  planning  to  double  its 
capital.  Furthermore,  those  institutions  which  had  met  with  difficul- 
ties in  preceding  years  now  found  their  real  estate  holdings  so  greatly 
appreciated  in  value  as  to  bring  great  prosperity  out  of  old  receiver- 
ships. 

The  story  is  told  of  the  Park  National  Bank  of  Chicago  which 
went  into  the  hands  of  a  receiver  in  July,  1890,  and  which,  in  addi- 
tion to  paying  off  all  of  its  debts,  was,  when  turned  over  to  the  agent 


HISTORY  OF  BANKING  TN  ILLINOIS  247 

of  the  stockholders  in  1892,  able  to  realize  the  amount  of  its  original 
capital  and  start  another  bank.  All  this  was  because  of  the  appre- 
ciation of  certain  suburban  real  estate  held  by  the  bank  and  thought 
to  be  all  but  worthless  at  the  time  of  the  failure.  Similarly,  the  Third 
National  Bank  which  held  a  tract  of  pasture  land  not  considered 
worth  listing  with  the  assets,  was,  in  1892,  able  to  value  this  same 
property  at  more  than  a  million  dollars. 

Of  the  two  hundred  and  six  million  dollars  held  as  deposits  in 
Chicago's  banks  at  this  time,  sixty-three  million  belonged  to  country 
banks  and  might  be  subject  to  withdrawal,  in  part  at  least,  for  crop 
moving.  A  stringency  of  the  previous  autumn  had  warned  borrowers 
to  provide  for  their  needs,  and  so  many  of  the  larger  ones  did  this  that 
they  were  virtually  out  of  the  market  at  their  usual  period  of  heaviest 
demand.  Knowing  this,  few  bankers  expected  even  the  average 
autumnal  pressure.  They  had  not  counted  sufficiently,  however,  on 
the  manner  in  which  the  country  banks  would  make  their  demands. 
Not  only  were  these  unusually  heavy  because  of  a  very  large  crop, 
but  they  came  early  and  with  great  suddenness,  and  did  not  let  up 
until  the  following  summer. 

This  situation,  which  prevailed  throughout  the  country,  was 
greatly  aggravated  by  the  banking  practice  then  in  vogue  which  had 
also  been  largely  responsible  for  the  difficulties  of  1873.  Through 
it,  all  the  available  funds  of  the  whole  nation  were  concentrated  in 
the  banks  of  New  York  where,  because  of  the  high  interest  rates  paid 
on  them,  not  a  sufficient  portion  could  be  kept  in  vault  for  such  emer- 
gencies. Therefore,  as  soon  as  country  banks  experienced  their  first 
difficulty  in  securing  the  money  they  required,  they  began  calling- 
all  their  funds  and  nearly  drained  the  New  York  banks  of  available 
cash.  So,  the  prosperity  which  had  held  sway  for  some  time  received 
a  sudden  shock,  and  a  panic  which  was  ready  to  burst  upon  the  country 
because  its  roots  were  already  laid  in  national  and  international  affairs 
of  wide  scope,  was  precipitated  in  the  spring  of  1893. 

In  fact,  the  real  trouble  had  started  as  early  as  February  in  the 
failure  of  the  Philadelphia  and  Reading  Railroad  and  of  the  National 
Cordage  Company.  These  had  brought  on  the  usual  flurry  in  the 
banking  district  of  New  York  and  a  curtailment  of  bank  loans,  but 
as  yet  there  was  little  disturbance  outside  of  New  Yrork.  It  did  not 
become  acute  in  America  as  a  whole  until  the  middle  of  May.  Then, 
unlike  any  panic  that  had  gone  before,  this  one  showed  marked  sec- 
tional contrasts.     It  fell  with  greatest  violence  on  the  western  and 


248  FINANCING  AN  EMPIRE 

middle  western  banks,  and  it  seemed  that  the  farther  west  a  bank 
Mas  located  the  greater  the  difficulties  with  which  it  had  to  contend. 
It  is  probable,  however,  that,  even  though  Illinois  was  not  a  far 
western  state,  no  other  found  the  effects  of  the  panic  more  far-reach- 
ing and  certainly  no  other  city  endured  more  suffering  than  did 
Chicago. 

In  the  first  place,  the  actual  precipitation  of  the  panic  seems  to 
have  taken  place  in  Chicago  in  the  failure  on  May  9  of  the  Chemical 
National  Bank  and  two  days  later  of  the  Columbia  National,  each  of 
which  institutions  had  a  capital  stock  of  a  million  dollars.  They  were 
the  largest  national  banks  to  fail  in  1893;  their  liabilities  were 
$2,559,885  and  $2,910,715,  respectively.  These  suspensions  were 
accompanied  by  the  collapse  of  private  and  state  banks  and  business 
firms.  They  paralyzed  credit  over  a  wide  territory  and  brought  the 
country  to  a  crisis. 

The  Columbia  National  Bank  failure  was  particularly  significant 
in  that  this  institution  was  the  parent  bank  of  what  was  known  as 
the  Zimri  Dwiggins  chain  of  banks,  or  the  "Dwiggins  System."  Mr. 
Dwiggins  seems  to  have  had  a  theory  that  the  organization  of  a  bank 
with  enough  capital  for  one  institution  was  sufficient  for  the  estab- 
lishment of  almost  any  number  of  branches  at  different  points,  hav- 
ing no  apparent  connection  with  one  another,  and  existing  for  the 
purpose  of  feeding  the  parent  bank  with  deposits. 

Dwiggins  had  organized  the  Columbia  National  Bank  on  Decem- 
ber 15,  1891.  He  was  its  president,  as  he  was  also  of  the  United 
States  Loan  and  Trust  Company,  an  Indiana  corporation  with  an 
office  in  Chicago,  the  affairs  of  which  were  so  closely  interwoven  with 
those  of  the  bank  as  to  make  the  two  practically  one  institution. 
Whatever  was  done  by  either  of  these  institutions  was  actually  done  by 
Dwiggins  who  completely  controlled  their  affairs.  Furthermore,  it 
was  his  custom  always  to  control  the  affairs  of  each  without  con- 
sulting the  directors  of  either.  As  president  of  the  bank  he  would 
draw  up  contracts  with  himself  as  president  of  the  trust  company,  nor 
did  he  consider  it  at  all  necessary  to  have  any  written  records  of 
these  dealings. 

As  originally  organized,  the  loan  and  trust  company  was  to 
negotiate  farm  mortgages,  but  about  February,  1892,  it  was  reor- 
ganized and  distributed  all  of  the  assets  then  in  its  possession  among 
the  stockholders.  Thereafter  it  was  to  deal  in  the  stocks  of  country 
banks.     Without  a  cent  of  paid-in  capital  it  entered  upon  this  new 


HISTORY  OF  BANKING  IN  ILLINOIS  ..  249 

venture.  In  place  of  capital,  the  company  issued  a  half  million  of 
what  it  pleased  to  call  "income  bonds."  These  were  sold  to  anyone 
foolish  enough  to  buy  them  and  thus  to  put  himself  in  the  position 
of  a  stockholder.  The  money  so  received  was  to  be  invested  in  the 
stock  of  country  banks  and  when  a  quarter-million  of  such  stocks 
had  been  accumulated,  debenture  bonds  in  like  amount  were  to  be 
issued — a  series  for  each  new  quarter-million  of  stocks  acquired. 
These  debentures — to  be  called  "Collateral  Trust  Gold  Bonds" — were 
to  be  sold  at  par  and  thereby  return  to  the  treasury  an  amount  equiva- 
lent to  the  original  sum  invested.  From  this  point  the  whole  process 
could  be  repeated. 

Were  the  plan  successful,  the  company  must  finally  have  accumu- 
lated the  entire  stock  of  all  the  country  banks  in  the  Dwiggins  chain. 
Then,  when  the  last  quarter-million  of  stock  had  been  acquired  and 
the  collateral  trust  gold  bonds  issued  on  it  and  sold,  the  original  pur- 
chasers of  the  income  bonds  would  have  had  returned  to  them  the 
amount  they  originally  invested.  Meantime,  they  would  have  drawn 
the  five  per  cent  on  their  money  which  was  to  have  been  paid  from 
dividends  on  the  country  bank  stocks.  The  whole  scheme  presumed, 
of  course,  that  the  average  annual  dividends  on  these  stocks  would 
exceed  five  per  cent,  and,  to  be  sure,  it  must  have  exceeded  that  figure 
if  the  plan  were  to  work  at  all.  In  addition,  it  was  planned  that  there 
wrould  be  a  large  surplus,  seventy-five  per  cent  of  which  was  to  go  to 
the  holders  of  the  income  bonds  and  the  remaining  twenty-five  per 
cent  to  the  holders  of  the  original  stock  in  the  old  United  States  Loan 
and  Trust  Company. 

Had  it  been  operating  honestly  there  is  a  small  chance  that  this 
fantastic  scheme  might  have  worked,  at  least  for  a  time.  However, 
instead  of  selling  the  income  bonds  for  cash  and  investing  the  pro- 
ceeds in  country  bank  stocks,  as  he  claimed  to  do,  Dwiggins,  acting 
for  the  trust  company,  would  call  together  the  stockholders  of  the 
country  banks  and  arrange  to  trade  income  bonds  for  bank  stock  at 
par.  Furthermore,  as  an  evidence  of  good  faith,  he  would  agree  to 
deposit  with  the  bank  an  amount  of  mone}r  equal  to  the  value  of  the 
stock  to  be  purchased,  and  to  take  the  bank's  certificate  of  deposit 
therefor. 

Now,  as  president  of  the  loan  and  trust  company,  he  had  posses- 
sion of  the  stock  of  the  country  bank  and  also  of  its  certificate  of 
deposit.  Next  in  his  capacity  as  president  of  the  Columbia  National 
Bank,  he  would  purchase  from  himself  as  president  of  the  trust  com- 


250  FINANCING  AN  EMPIRE 

pany  the  certificate  of  deposit  at  its  face  value,  have  it  endorsed  to  the 
bank  without  recourse,  and  thus  succeed  not  only  in  having  the  com- 
pany dispose  of  its  income  bonds,  but  at  the  same  time  be  relieved  of 
the  burden  of  its  contract  by  unloading  it  on  the  bank. 

Thus,  with  a  nominal  investment  on  the  part  of  the  company  and 
an  actual  investment  on  the  part  of  the  bank  of  two  or  three  hundred 
thousand  dollars,  Dwiggins  managed,  between  February  and  the 
following  September,  to  dispose  of  one  quarter  of  a  million  of  tht 
income  bonds,  accumulated  a  quarter  of  a  million  of  bank  stock, 
and  had  the  bank,  through  himself  as  its  president,  purchase  from 
himself  as  president  of  the  trust  company  at  least  a  quarter  of  a  mil- 
lion dollars'  worth  of  certificates  of  deposit  in  country  banks.  In  all, 
Dwiggins  unloaded  on  the  bank  over  two  hundred  and  forty-one 
thousand  in  the  collateral  trust  bonds  and  not  less  than  one  quarter 
of  a  million  in  certificates  of  deposit,  and  succeeded  in  getting  for 
the  company,  without  any  investment  on  its  part,  some  two  hundred 
and  thirty-one  thousand  dollars  of  the  bank's  discounts. 

As  the  bank  seems  to  have  been  used  for  nothing  but  a  feeder  for 
the  trust  company,  and  most  of  the  country  bank  stocks  were  con- 
sidered worthless  at  the  time  of  its  failure,  it  is  obvious  that  these 
transactions  were  responsible  for  the  bank's  failure. 

When  the  bank's  assets  were  disposed  of  under  court's  order  it 
was  found  that  losses  amounted  to  nearly  one  and  one-half  million 
dollars.  It  took  until  1905  to  close  up  the  affairs  of  this  receivership 
and  in  that  time  dividends  amounting  to  eighty-one  per  cent  were 
paid  to  creditors. 

In  all  probability,  there  was  not  another  national  bank  failure 
during  the  panic  of  1893  which  was  quite  so  disastrous  as  this.  Thirty 
or  forty  small  banks  were  involved,  scattered  throughout  the  states 
of  Illinois,  Indiana,  and  Michigan.  Every  bank  belonging  to  the 
Dwiggins  chain  collapsed  with  the  parent  institution. 

This  rather  widespread  failure,  together  with  that  of  the  highly 
respected  Chemical  National  Bank,  led  the  citizens  of  Chicago  to 
experience  so  much  fear  of  their  financial  institutions  as  to  attempt 
runs  on  some  of  the  strongest  banks  the  city  could  boast.  As  a  re- 
sult, a  number  of  ludicrous  incidents  occurred,  not  the  least  among 
which  concerned  the  run  on  the  Illinois  Trust  and  Savings  Bank. 
This  institution  was  then  one  of  the  leaders  in  banking  progress  in 
the  city  and  among  the  largest  savings  banks  in  the  middle  west. 

lTp  to  this  time  it  had  been  customary  for  the  banks  of  Chicago 


HISTORY  OF  BANKING  IN  ILLINOIS  .  25J 

to  pay  four  per  cent  on  savings  deposits.  When,  however,  the  Illi- 
nois Trust  and  Savings  Bank  came  to  the  conclusion  that  it  was  a 
more  conservative  policy  to  cut  this  rate  to  three  per  cent  and  an- 
nounced this  change  as  ahout  to  go  into  effect,  immediately  all  other 
institutions  in  Chicago  followed  suit  in  spite  of  the  fact  that  Detroit, 
Cleveland,  Pittsburgh,  and  other  large  cities  were  retaining  the  higher 
rate.  In  other  respects  also  the  Illinois  Trust  and  Savings  Bank 
was  highly  regarded  among  business  men  and  bankers  for  its  con- 
servative policies.  In  fact,  a  story  is  told  of  an  experience  had  by 
Philip  D.  Armour  when  he  attempted  to  borrow  money  from  that 
institution.  lie  sent  his  confidential  man  to  negotiate  the  loan,  who, 
when  arrangements  were  almost  completed,  was  told  by  President 
Mitchell  to  bring  over  his  collateral. 

"Collateral,"  said  the  confidential  man  in  surprise,  "Mr.  Armour 
never  puts  up  collateral." 

"Well,"  said  Mr.  Mitchell,  "that  is  a  rule  here  and  if  Mr.  Armour 
wants  the  money,  he  will  have  to  submit  the  necessary  collateral  se- 
curity." 

When  this  incident  was  reported  to  Mr.  Armour,  he  smiled,  sent 
over  the  required  securities,  and  the  loan  was  closed,  lie  was  so 
pleased  at  this  evidence  of  strict  adherence  to  business  principles  on 
the  part  of  President  Mitchell  that  he  subsequently  increased  his 
holdings  of  Illinois  Trust  and  Savings  Bank  shares  and  the  number  of 
these  certificates  in  his  portfolio  increased  steadily  until  he  had  become 
one  of  the  larger  holders  of  Illinois  Trust  and  Savings  Bank  stock 
and  a  director  of  the  institution. 

It  was,  therefore,  not  at  all  surprising  that  in  a  subsequent  period 
of  stress,  Philip  Armour  caused  to  be  posted  in  his  packing  plant 
the  statement  that  he  was  willing  to  guarantee  any  deposits  owned 
by  any  Armour  employee  in  the  Illinois  Trust  and  Savings  Bank  and 
explained  that  he  was  able  to  do  this  because,  of  all  the  banks  from 
which  he  had  borrowed  money,  this  one  alone  had  compelled  him  to 
safeguard  his  borrowings  by  putting  up  suitable  collateral. 

At  this  same  time  business  unsettlement,  together  with  general 
losses  both  in  Chicago  and  elsewhere,  had  brought  on  so  great  a 
lack  of  confidence  as  to  lead  the  citizens  of  Chicago  to  lose  faith  even 
in  this  strong  bank  so  highly  respected  in  banking  and  business 
circles.  For  four  days  and  nights  in  May,  1893,  long  lines  of  people 
stood  before  the  Illinois  Trust  and  Savings  Bank  patiently  waiting 
hour  after  hour  to  secure  their  deposits.     In  those  lines  were  men, 


252  FINANCING  AN  EMPIRE 

women,  and  children  of  every  age,  class,  and  station.  Hour  after 
hour  they  waited,  slowly  moving  toward  the  teller's  window  where 
they  were  certain  to  receive  all  they  asked.  It  was  a  pathetic  sight 
and  one  which  so  moved  the  officers  of  the  bank  as  to  lead  them  to 
put  on  an  extra  force  and  command  their  tellers  to  remain  on  duty 
until  every  customer  had  been  satisfied.  For  four  days  these  men 
stood  in  their  cages  until  well  past  midnight. 

Philip  D.  Armour  and  Marshall  Field,  viewing  the  lines  from  Mr. 
Armour's  office  across  the  street,  seemed,  with  their  kindly  eyes,  to 
see  only  lame  old  men,  weary  toilers,  and  anxious  women  with  babies 
in  their  arms.  The  sight  touched  them  so  deeply  that  they  sent 
messengers  who  walked  up  and  down  telling  the  people  that  they 
might  receive  their  money  if  they  would  present  their  pass  books  at 
Mr.  Field's  store  or  Mr.  Armour's  office.  This  relieved  the  conges- 
tion somewhat  but  not  entirely.  At  5 :30  Mr.  Armour  went  home  and 
Mr.  Field  closed  his  store.  Then  the  lines  at  the  bank  lengthened. 
On  and  on  they  went  and  the  tellers  worked  until  three  o'clock  in 
the  morning. 

Three  o'clock,  and  every  waiting  depositor  but  one  had  been  paid. 
In  the  four  days  of  strain  nine  million  dollars  had  passed  out  through 
those  tellers'  windows.  Now  there  stood  before  them  a  lone  depositor, 
a  negro,  who  had  saved  twenty-five  hundred  dollars.  He  presented 
his  pass  book  and  the  money  was  counted  out  for  him.  Twenty-five 
hundred  dollars — what  a  stack  of  money!  The  man  took  it,  counted 
it  over,  became  convinced  that  it  Avas  all  there,  and  then  with  a 
puzzled  expression  said:  "Say,  Boss,  if  I  take  this  heah  money,  it 
might  get  stolen  from  me.  I  know  yo'  all  has  got  it  safe  fo'  me.  You 
jes'  take  it  back  again."  But  the  tired  teller  refused.  If  the  man 
had  so  little  faith  in  the  bank  as  to  be  willing  to  stand  in  line  until 
three  o'clock  in  the  morning  to  get  his  money,  it  seemed  best  that  he 
find  for  it  another  place  worthy  of  his  confidence.  "No,"  he  said, 
"we  can't  take  it  back  now.  You  will  have  to  stand  the  risk  of  losing 
it."  The  negro  was  terror  stricken.  He  refused  to  leave  the  bank 
with  his  precious  load.  The  teller  remained  firm  in  his  determination 
not  to  take  the  money  on  re-deposit,  but  he  was  tired  and  did  want 
to  go  home.  Finally,  a  brilliant  idea  came  to  him.  'Why  not  take 
your  money  to  the  police  station  for  protection?"  he  asked.  The 
suggestion  worked  and  the  last  depositor  spent  the  remainder  of  that 
night  in  jail  with  twenty-five  hundred  dollars  under  guard. 

Confidence  returned  to  the  negro  and  to  the  rest  of  Chicago  as 


HISTORY  OF  BANKING  IN  ILLINOIS  .  253 

well;  the  run  on  the  Illinois  Trust  and  Savings  Bank  was  broken 
by  the  very  willingness  of  its  officers  to  meet  their  obligations  on 
demand. 

Nor  was  the  fact  that  Illinois  had  the  worst  bank  failures  of 
the  time  the  only  reason  why  she  felt  the  panic  so  severely.  During 
the  long  period  of  expansion  that  had  preceded  the  trouble,  financial, 
commercial,  and  industrial  development  in  Illinois  had  been  especially 
rapid.  Consequently,  it  was  to  be  expected  that  the  panic  would 
be  similarly  severe.  On  the  whole,  however,  the  smaller  cities  of  the 
state  did  not  suffer  as  much  as  Chicago.  There  were  no  state  bank 
failures  at  all  in  Illinois  during  1893  and  outside  of  Chicago  there 
were  only  two  national  bank  failures — the  Evanston  National  Bank 
with  a  capital  of  one  hundred  thousand  dollars  and  the  First  National 
Bank  of  Kankakee  with  a  fifty  thousand  dollar  capital.  (Report  of 
the  Comptroller  of  the  Currency,  1893,  1:75-76.) 

Because  of  the  heavy  cash  withdrawals  from  the  interior,  the 
eastern  banks  were  forced  to  issue  clearing-house  certificates  by  the 
end  of  June.  This  had  been  done  in  the  east  in  1873  and  again  in 
1884,  but  in  1893  it  was  done  on  a  much  larger  and  more  complete 
scale  than  formerly.  A  total  of  $03,152,000  in  these  certificates  was 
issued  in  the  cities  of  New  York,  Boston,  Philadelphia,  Baltimore, 
and  Pittsburgh.  Chicago,  too,  faced  the  question  of  issuing  certificates, 
but  as  she  had  always  avoided  their  use  in  previous  disasters,  there 
was  a  strong  local  prejudice  against  them  and  the  city  decided  not 
to  use  them,  even  though  her  financial  position  was  not  now  so  strong 
as  in  1873.  A  little  later  the  clearing  house  did  sanction  their  issue, 
but  not  a  banker  in  the  city  would  avail  himself  of  their  use  and, 
while  this  attitude  doubtless  put  an  added  strain  on  the  banks  of  the 
east,  it  also  did  valuable  things  for  the  financial  standing  of  Chicago. 
As  a  result,  many  western  banks  transferred  their  reserve  accounts 
from  New  York  to  Chicago,  and  no  bank  failures  occurred  in  the 
city. 

Clearing  house  certificates  in  the  east  offset  the  violent  shrinkage 
in  reserves  which  otherwise  would  have  taken  place.  In  fact,  between 
May  4  and  July  12,  the  loan  account  of  New  York  national  banks 
actually  increased.  That  of  Philadelphia  was  cut  by  only  two  per 
cent  and  loans  in  Boston  by  only  four  per  cent.  Chicago,  without 
this  emergency  provision  for  currency,  was  forced  to  reduce  her 
loans.  Records  available  show  that  at  one  time  they  were  reduced 
as  much  as  fifteen  per  cent,  and  it  is  claimed  that  during  the  months  of 


254  FINANCING  AN  EMPIRE 

July  and  August  the  contraction  even  exceeded  this  amount.  When- 
ever cash  was  withdrawn  hy  country  hanks  further  loan  contractions 
had  to  he  made  to  meet  the  withdrawals,  until  those  of  national  banks 
alone  in  the  city  of  Chicago  were  reduced  four  million  dollars  be- 
tween March  6  and  May  4.  Then  between  May  4  and  July  12  such 
loans  were  reduced  from  ninety-six  million  dollars  to  only  eighty- 
two  million  and  net  deposits  fell  from  $99,600,000  to  $81,300,000. 
Cash  reserves  in  that  period  dropped  from  $29,300,000  to  $24,900,000, 
but  the  ratio  of  reserves  to  liabilities  was  raised  from  29.4  per  cent  to 
30.0  per  cent.  By  October  4  loans  had  been  still  further  reduced  to 
$73,500,000,  and  the  situation  became  so  acute  that  in  the  country 
about  Chicago  the  contraction  of  loans  constituted  one  of  the  most 
striking  features  of  the  panic.  Between  May  4  and  October  4  loans 
of  all  national  banks  in  the  country  were  reduced  by  14.7  per  cent, 
but  in  Chicago  the  reduction  in  that  same  period  amounted  to  26.7 
per  cent.     (Report  of  the  Comptroller  of  the  Currency,  1893,  1 :209.) 

In  July  there  came  an  epidemic  of  bank  failures  all  over  the 
country.  Illinois,  hard  pressed  as  she  was  from  general  panic  con- 
ditions, did  not  add  to  these.  With  the  bank  failures  came  receiver- 
ships for  railways  and  consequent  heavy  withdrawals  from  New  York 
banks.  A  break  in  the  price  of  securities  resulted,  and  in  the  last 
two  weeks  of  July  alone  thirty-three  banks  failed. 

In  the  first  nine  months  of  the  year  there  were  suspensions  by  one 
hundred  and  fifty-eight  national  banks,  one  hundred  and  seventy-two 
state  banks,  forty-seven  savings  banks,  one  hundred  and  seventy- 
seven  private  banks,  thirteen  loan  and  trust  companies,  and  six  mort- 
gage companies.  Among  the  important  railways  to  go  into  receiver- 
ships in  this  period  were  the  Erie,  Reading,  Northern  Pacific,  Union 
Pacific,  and  the  Atchison,  Topeka  and  Santa  Fe  which  at  that  time 
included  the  'Frisco. 

Chicago  banks  tried  to  strengthen  their  reserves  bv  the  direct  im- 
portation  of  gold  from  abroad.  No  longer  did  they  dispose  of  com- 
mercial bills  to  foreign  exchange  houses  in  New  York,  but  instead 
secured  gold  in  London  which  was  shipped  directly  to  the  various 
banks  involved  in  the  trading  operations  of  the  city.  These  imports 
of  gold  were  further  enhanced  by  the  rapidly  falling  prices  of  wheat 
and  other  commodities.  In  parts  of  the  west  farmers  sold  their 
wheat  for  as  little  as  thirty-five  cents  a  bushel  and  foreign  buyers 
were  glad  to  exchange  gold  for  it  at  such  prices. 

In    August  there   occurred    a    wheat    corner   in    Chicago   which. 


HISTORY  OF  BANKING  IN  ILLINOIS  255 

through  its  collapse,  let  prices  drop  still  further.  At  about  this  time 
the  same  group  was  attempting  to  operate  a  corner  in  provisions;  the 
failure  of  this  also  reduced  the  prices  of  hog  products  to  a  level 
almost  as  low  as  that  of  wheat  and  led  to  a  large  exportation  of  them. 

The  drop  in  prices,  together  with  Chicago's  method  of  receiving- 
gold  direct  in  payment  for  such  products,  resulted  in  an  interference 
with  foreign  exchanges.  At  the  same  time,  because  of  local  cur- 
rency afloat  throughout  the  country,  domestic  exchanges  were  likewise 
thoroughly  disorganized.  During  all  of  August  exchange  on  New 
York  was  at  a  discount  in  Chicago  and  on  the  twelfth  it  went  to 
thirty  dollars  a  thousand.  Things  reached  such  a  state  that,  accord- 
ing to  Bradstreet's  report,  Chicago  packers  and  grain  shippers  were 
absolutely  unable  to  use  Xew  York  exchange  had  they  wished  to  do 
so.  Therefore,  they  ordered  currency  to  pay  for  the  goods  shipped 
direct  by  express  and  so  did  away  with  the  use  of  banks. 

The  situation,  as  seen  from  the  viewpoint  of  a  banker,  is  humor- 
ously described  by  O.  P.  Bourland,  President  of  the  National  Bank 
of  Pontiac.  Mr.  Bourland,  who  had  taken  an  active  part  in  banking 
in  the  state  from  the  time  of  the  Civil  War,  attributed  the  situation 
in  Illinois  largely  to  an  exaggerated  fright  on  the  part  of  the  people, 
coupled  with  the  prominence  given  unpleasant  occurrences  in  the 
unwise  publicity  of  the  time.  In  an  address  describing  his  fifty  years 
of  banking  experience,  he  said: 

"The  late  Mr.  James  B.  Forgan,  former  President  of  the  First 
National  Bank  of  Chicago  (in  his  memoirs),  slides  over  his  reference 
to  this  panic  with  a  surprisingly  brief  mention  of  it.  But  I  remember 
seeing  him  in  his  office  on  the  morning  of  October  16,  1893,  when  the 
panic  was  at  its  greatest  strain.  He  certainly  looked  as  if  he  had 
just  forgotten  to  sleep  or  to  visit  his  barber.  I  could  read  the  situa- 
tion in  his  appearance  and  manner.  When  I  appeared  in  his  office  he 
w  as  interviewing  a  banker  from  Waterloo,  Iowa,  who  made  the  ab- 
surd demand  on  Mr.  Forgan  that  he  agree  to  advance  him  twenty- 
five  thousand  dollars  if  the  panic  conditions  became  rcorse. 

'Why,  my  dear  man,'  says  Forgan,  'if  it  grows  much  worse  we 
may  ask  you  for  twenty-five  thousand  or  more.  How  do  ye  like 
that:''  But  the  man  was  persistent  and  unreasonable,  accompanying 
his  demand  with  the  statement  that  he  had  kept  a  dej;>osit  at  the 
First  National  Bank  for  ten  years  of  not  less  than  ten  thousand  dol- 
lars and  had  never  borrowed  a  cent  during  that  time. 

"Forgan's  patience  at  last  gave  way.     He  rose  to  his  full  six  feet 


256  FINANCING  AN  EMPIRE 

one,  and  pointed  a  finger  at  his  questioner.  'I  thank  ye  for  your  con- 
fidence in  the  past  and  your  patronage  but  when  ye  ask  me  to  guar- 
antee ye  a  cool  seat  in  Heaven  when  Hell  breaks  loose  ye  are 
unreasonable,  and  that's  my  last  word  to  ye!' 

"The  Waterloo  banker  departed,  noisily  slamming  the  door  behind 
him. 

"Then  Forgan  turned  to  me  as  I  sat  on  his  old  worn  settee.  Nat- 
urally he  was  worried  and  his  voice  showed  it.  'Well,  Bourland,  what 
can  I  do  for  you?' 

"He  naturally  assumed  that  I  was  one  of  the  long  procession  of 
borrowers  the  panic  was  hatching. 

"  'Nothing,  Mr.  Forgan,  except  to  tell  me  what  the  situation  is 
and  what  are  the  prospects.' 

"His  relief  was  at  once  evident  as  he  turned  and  handed  me  a 
bunch  of  telegrams  to  read.  1  read  of  the  closing  of  two  banks  in 
Denver,  one  in  Cincinnati,  and  one  in  Louisville. 

;  'And  there  will  be  more  to  follow,'  quoth  Forgan  as  I  handed 
them  back. 

"While  I  had  been  awaiting  my  turn,  I  had  been  examining  some 
completed  photographs  I  had  just  received  from  a  Wabash  Avenue 
photographer.  My  wife  had  some  two  weeks  before  inveigled  me  into 
sitting  for  them.  'Whose  pictures  have  ye  there?'  asked  Forgan. 
'They  are  mine,  Mr.  Forgan,  I'm  sorry  to  say.'  He  took  one  and, 
after  examining  it  at  considerable  length,  said,  'Let  me  have  one  of 
these  pictures,  will  you?'  'Why,  Mr.  Forgan,  what  in  the  world  do 
you  want  with  my  photograph?'  Mr.  Forgan  reflected  a  moment 
before  replying,  'Well,  sir,  I  want  to  put  it  up  over  my  desk  and 
write  over  it  these  words:  Chicago,  Illinois,  October  16,  1893.  Pic- 
ture of  a  man  who  doesn't  want  to  borrow  any  money.'  " 

This  money  stringency  was  made  worse  by  a  growing  distrust  of 
national  monetary  affairs.  The  Lnited  States  Treasury  had  become 
the  source  of  an  immense  volume  of  paper  currency  upon  which  the 
business  of  the  country  was  done.  The  amount  of  this  paper  money 
was  so  large  that  it  was  generally  expected  to  produce  a  like  amount 
of  business.  But  a  feeling  prevailed  that,  after  all,  the  Treasury 
was  not  in  a  position  to  redeem  all  this  paper  in  gold  on  demand. 

Through  an  article  which  appeared  in  New  York  and  was  re- 
printed and  widely  distributed  over  the  country,  there  was  created 
an  erroneous  impression  that  all  gold  contracts  had  been  declared 
invalid.    The  article  had  questioned  the  validity  of  such  contracts  but, 


HISTORY  OF  BANKING  IN  ILLINOIS  257 

to  make  its  point,  had  cited  the  cases  of  some  old  decisions  of  state 
courts,  now  long  since  either  reversed  or  overruled.  The  impression 
left  was  that  neither  government  paper  money  nor  bonds  "payable 
in  United  States  gold  coin"  could  be  held  for  payment  in  gold. 

To  aid  further  the  effects  of  this  erroneous  impression  was  the 
definite  knowledge  that  the  funds  of  the  Treasury  actually  were  de- 
pleted. President  Cleveland's  administration  which  began  on  March 
4,  1893.  found  the  Treasury  Department  in  the  worst  condition  known 
since  the  war.  There  was  not  even  sufficient  revenue  to  meet  the 
government's  actual  expenditures.  The  small  supply  of  gold  avail- 
able was  being  further  depleted  by  the  monthly  purchase  of  four  and 
one-half  million  ounces  of  silver  provided  for  in  the  act  of  1890.  As 
this  metal  was  bought  for  coinage  purposes,  in  addition  to  depleting 
the  supply  of  gold,  it  also  prejudiced  the  securities  and  credit  of  the 
United  States  in  the  minds  of  foreign  investors,  as  well  as  those  at 
home.  By  April  grave  doubts  of  the  government's  ability  to  pay  its 
paper  currency  in  gold  on  demand  had  so  seized  the  country  that 
depositors  everywhere  became  doubtful,  withdrew  their  bank  hold- 
ings and  hoarded  the  money.  The  Secretary  of  the  Treasury,  in 
view  of  this  situation,  was  hardly  in  a  position  to  furnish  convincing 
evidence  insuring  the  convertibility  of  the  currency,  and  so  the 
already  limited  confidence  of  the  nation  was  further  weakened. 

To  remedy  this  bad  situation,  the  banks  of  Denver  offered  to  ex- 
change one  million  dollars  of  gold  for  paper  currency.  Next,  Chicago 
banks,  finding  that  the  city  was  in  need  of  small  bank  notes,  made  a 
like  offer  of  three  million  in  gold.  President  Cleveland  demanded 
the  suspension  of  silver  purchases,  but  the  silver  advocates  were  so 
powerful  in  both  parties  as  to  put  the  President  at  a  great  disad- 
vantage. Consequently,  his  wishes  were  not  carried  out  at  once. 
He  called  a  special  session  of  Congress  at  the  end  of  June,  when 
there  seemed  no  other  way  to  bring  relief,  but  this  body  did  not  meet 
•until  August  7,  and  while  the  House  gave  the  President  his  way 
rather  quickly,  the  bill  was  debated  in  the  Senate  for  many  weeks. 
Not  until  October  30  was  a  favorable  vote  secured  on  it  there.  Mean- 
time, the  country  was  thrown  into  a  condition  of  still  greater  panic 
and  uncertainty,  never  knowing  from  day  to  day  or  week  to  week 
whether  a  gold  or  silver  basis  was  to  rule. 

While  this  debate  was  going  on,  things  were  further  complicated 
by  an  attempt  on  the  part  of  England  to  put  her  colonies  on  a  full 
gold  basis.     This  she  did  by  closing  the  government  mints  in  India 


258  FINANCING  AN  EMPIRE 

to  the  free  coinage  of  silver.  Hitherto  forty  to  fifty  million  dollars' 
worth  of  silver  had  gone  to  this  purpose  annually.  Americans  gen- 
erally believed  that  once  this  great  market  for  the  white  metal  was 
closed  the  vast  silver  mines  of  our  western  states  would  become  worth- 
less. To  be  sure,  it  did  cause  a  fall  in  the  price  of  silver  bullion,  but 
on  any  other  occasion  this  probably  would  not  have  been  accompanied 
with  serious  consequences.  Now,  however,  people  believed  that  the 
entire  financial  problem  was  associated  with  the  coinage  of  silver,  thus 
furnishing  one  of  the  contributory  forces  to  the  panic. 

Even  when,  at  the  end  of  October,  the  government  was  relieved 
from  the  further  purchase  of  silver,  there  were  sufficient  other  factors 
contributing  to  continued  hard  times  to  make  the  pro-silver  faction 
believe  that  its  theories  alone  could  bring  a  return  of  prosperity. 
Commerce  and  industry  were  now  at  such  a  low  state  that  immediate 
treasury  revenues  were  exhausted  even  without  the  added  silver  drain. 
The  panic  had  penetrated  into  every  corner  of  the  industrial  life 
of  the  nation.  Securities  fell  to  a  half  or  even  a  quarter  of  their 
former  value,  and  in  December  the  Comptroller  of  the  Currency  an- 
nounced the  failure  of  five  hundred  and  seven  banks  and  six  mortgage 
companies.  People  so  distrusted  the  banks  that  in  many  instances 
those  in  the  country  were  forced  to  suspend  even  while  their  cash 
resources  were  on  the  way  to  them  from  reserve  city  banks.  Had  it 
been  possible  to  get  at  hoarded  money  the  situation  might  have 
quickly  cleared  up,  but  the  more  money  was  needed  the  more  deeply 
it  went  into  hiding.  According  to  some  students  of  the  situation, 
the  whole  trouble  was  due  to  the  system  of  concentrating  bank  re- 
serves in  the  east.  Had  these  funds  been  in  their  own  communities 
when  first  the  panic  broke,  there  might  have  been  enough  to  go  around 
and  difficult  times  need  not  have  been  of  any  very  long  duration. 

In  Illinois  no  state  banks  and  only  the  two  national  institutions 
previously  noted,  failed  during  the  year.  However,  reports  for  the 
first  eight  months  show  that  twenty-four  other  banking  institutions 
in  the  state  did  close.  Of  these,  one  was  a  mortgage  and  investment 
company  with  assets  of  fifty  thousand  dollars  and  liabilities  of  seventy 
thousand  dollars;  the  other  twenty-three  were  private  banks  witli 
combined  assets  of  $4,041,027  and  liabilities  of  $5,056,813. 

Of  failures  of  all  kinds  in  the  state,  there  was  a  fifty  per  cent 
increase  over  the  previous  year.  This  rate  was  about  the  same  as 
that  for  the  country  as  a  whole.  The  growth  of  liabilities  was  even 
more  startling.    These  increased  from  $2,051,038  in  1802  to  $18,777,- 


.FAMES  B.  FORGAX 


HISTORY  OF  BANKING  IN  ILLINOIS  -         261 

402  in  189.%  and  against  them  were  listed  assets  of  $20,358,615. 
This  showing  was  reported  better  than  that  made  by  any  other  state 
except  Wisconsin,  and  was  far  better  than  the  average  for  the  country 
as  a  whole.  Most  of  these  failures  occurred  in  mercantile  and  com- 
mercial enterprises  rather  than  in  manufacturing  establishments. 

Even  though  the  banks  of  Chicago  and  other  sections  of  the  state 
were  constantly  proving  their  strength  during  these  strenuous  days, 
the  general  distrust  of  all  financial  institutions  prevailing  throughout 
the  country  caused  constant  withdrawals  for  hoarding,  and  now 
and  then  a  run.  On  June  5,  1893,  there  occurred  a  run  on  the  sav- 
ings banks  of  Chicago  which  involved  eight  state  institutions.  In 
order  to  reassure  the  public,  the  state  auditor  ordered  these  banks 
to  furnish  printed  statements  of  their  condition  at  once.  These  ap- 
peared in  the  papers  immediately  thereafter  and,  as  they  showed  the 
banks  to  be  sound,  prevented  a  further  spread  of  the  panic.  At  this 
time  there  were  forty-four  state  banks  with  savings  deposits  totaling 
about  twenty  million  dollars.  As  these  banks  also  conducted  a  com- 
mercial business,  the  wholesale  withdrawal  of  savings,  had  the  run 
been  permitted  to  go  on,  would  have  affected  most  seriously  the  condi- 
tion of  banks  everywhere  throughout  the  state. 

During  the  panic  Illinois  made  two  important  contributions  to 
the  nation  as  a  whole — one  was  the  World's  Columbian  Exposition, 
and  the  other  was  a  Comptroller  of  the  Currency. 

James  H.  Eckels,  the  first  Comptroller  to  be  appointed  who 
had  not  had  previous  banking  experience,  was  born  in  Princeton,  Illi- 
nois, and,  after  receiving  his  education  and  up  to  the  time  of  his 
appointment  to  the  national  post,  he  was  a  practising  attorney  at 
Ottawa.  Because  the  country  was  plunged  into  the  panic  within  a 
month  after  Mr.  Eckels  assumed  office,  his  was  probably  the  hardest 
task  of  any  Comptroller  so  far  in  the  history  of  the  country.  In  spite 
of  this  difficult  situation  and  his  lack  of  familiarity  with  banking  prac- 
tice, he  handled  things  in  so  able  a  manner  as  to  merit  the  confidence 
of  the  business  and  banking  interests  of  the  entire  country.  In  his 
report  at  the  end  of  the  year  he  pointed  out  that,  of  the  one  hundred 
and  fifty-eight  national  banks  which  suspended  during  the  year  1893, 
only  three  were  in  the  middle  states  and  of  those  two  were  in  Chicago. 

As  the  causes  of  the  panic,  Mr.  Eckels  gave,  in  part,  inelasticity 
of  currency  and  the  consequent  inability  of  the  banks  to  issue  circula- 
tion sufficient  to  meet  the  demands  of  their  depositors  and  other  cus- 
tomers without  the  investment  of  an  equal  amount  in  United  States 
bonds.     The  primary  causes,  he  said,  were  the  same  as  those  which 

Vol.  1—9 


262  FINANCING  AN  EMPIRE 

had  brought  on  the  panic  of  1890 — overtrading,  expansion,  specu- 
lative investments,  excessive  expansion  of  credits  by  banks.  In  spite 
of  all  theories  and  pre-existing  conditions,  Mr.  Eckels  recognized 
the  real  cause  as  being  due  to  a  loss  of  confidence  in  the  solvency  of 
banks.  This,  he  said,  was  inspired  by  a  general  knowledge  of  the 
unsound  conditions  in  private  and  public  life  and  the  speculative 
character  of  investments  and  loans  in  which  the  funds  of  many  banks 
had  been  risked. 

After  the  panic  had  reached  that  stage  where  the  prices  of  securi- 
ties fell  abnormally,  European  investors,  keen  for  such  bargains,  began 
to  purchase  them  as  well  as  cheap  wheat  and  other  commodities.  Con- 
sequently, after  August  1,  1893,  money  in  payment  began  to  come 
into  the  country  until  the  heretofore  unheard-of  figure  of  forty  mil- 
lion dollars  was  reached.  This  influx  of  gold  soon  eased  the  situation 
in  general  and  brought  an  end  to  the  panic.  Other  factors,  however, 
caused  hard  times  to  remain  for  a  number  of  vears  thereafter. 


CHAPTER  XV 
THE  CHICAGO  WORLDS  FAIR 

Influence  of  the  Fair  on  the  panic  of  1893 — Efforts  to  secure  the  Fair  for  Chicago — 
Financing  the  proposed  exposition — Executive  organization — Issuing  bonds  beyond 
the  debt  limit — Collecting  stock  subscriptions — Difficulties  with  the  budget — 
Efforts  to  get  financial  aid  from  Congress — Columbian  half-dollars — Second  bond 
issue  floated  in  Chicago — Failure  of  the  Chemical  National  Bank — Opening  of  two 
world's  fair  branches  of  the  Northern  Trust  Company — Paying  the  debt — Effect  of 
the  Fair  on  the  development  of  Chicago. 

"There  is  today  one  redeeming  feature,"  said  the  Commercial  and 
Financial  Chronicle  of  October  14,  1893,  "but  it  appears  to  be  the 
only  one  among  the  business  ventures  of  the  whole  country,  and  that 
is  the  World's  Fair  in  Chicago  and  the  good  effect  its  present  pros- 
perity is  having  upon  the  financial  results  of  the  Fair  and  upon  rail- 
road earnings." 

While  it  is  true  that  in  large  part  the  severity  of  the  panic  of 
1893  in  Chicago  was  due  to  the  great  speculative  enterprises  that 
had  been  carried  on  there — and  no  small  part  of  them  were  the  direct 
results  of  the  opening  of  the  World's  Fair — nevertheless,  once  this 
great  enterprise  had  been  opened  to  the  general  public,  it  brought 
enormous  crowds  of  sightseeing  visitors  who,  in  spite  of  the  stringency 
of  the  times,  were  in  holiday  mood  and  therefore  freely  spent  such 
money  as  they  possessed.  In  a  single  day  seven  hundred  and  eighteen 
thousand  paying  visitors  were  reported  at  the  fair  grounds  and  it  was 
a  more  or  less  usual  situation  to  have  more  than  three  hundred 
thousand  visitors  present.  All  these  people  poured  much  needed 
cash  into  the  coffers  of  Chicago — little  wonder  that  her  banks  could 
survive  without  the  use  of  Clearing  House  certificates.  Nor  did  the 
conduct  of  the  World's  Fair  benefit  Chicago  alone.  So  great  a 
business  success  was  this  venture  that  the  whole  country  felt  the 
needed  effects.  First  of  all,  the  railroads,  many  of  which  had  found 
it  necessary  to  go  into  bankruptcy,  now  did  a  big  passenger  and 
freight  business  into  Chicago,  and  from  here  the  enterprise  spread 

263 


264  FINANCING  AN  EMPIRE 

until  the  whole  country  was  kept  from   falling  quite  as  far  as   it 
otherwise  might  have  clone  in  so  severe  a  period  of  panic. 

The  World's  Columbian  Exposition  of  Chicago  in  reality  reached 
hack  as  far  as  the  year  188.5  when  a  group  known  as  the  Chicago 
Interstate  Industrial  Exposition  resolved,  at  one  of  its  meetings, 
that  a  great  world's  fair  he  held  in  Chicago  in  1892  to  commemorate 
the  four  hundredth  anniversary  of  the  landing  of  Columbus  in 
America.  In  1888,  another  organization,  the  Iroquois  Club,  made 
itself  active  toward  the  same  end.  But  the  movement  did  not  become 
general  until  1889  when,  on  July  22,  Mayor  DeWitt  C.  Cregier 
appointed  a  committee  of  one  hundred  citizens  to  carry  out  this 
project.  Within  a  short  time  the  committee  was  increased  to  two 
hundred  and  fifty  and  this  larger  group  was  called  into  meeting  in 
the  Council  Chamber  in  August  and  there  actually  set  in  motion 
the  wheels  which  were  to  bring  to  Chicago  a  world's  fair  which,  be- 
cause of  its  great  beauty,  was  to  set  an  example  for  the  commercial 
architecture  of  the  whole  state  of  Illinois,  and  which  was  to  usher 
in  an  era  of  particularly  attractive  designs  for  bank  buildings. 

One  of  the  first  steps  taken  was  to  form  a  corporation  under  the 
name  of  the  "World's  Exposition  of  1892"  with  an  authorized  capi- 
tal stock  of  five  million  dollars  divided  into  five  hundred  thousand 
shares  of  ten  dollars  each.  By  the  middle  of  August  the  Secretary 
of  State  of  Illinois  had  authorized  Mayor  DeWitt  C.  Cregier,  Ferdi- 
nand W.  Peck,  George  Schneider,  Anthony  F.  Seeberger,  William 
C.  Seipp,  John  R.  Walsh,  and  E.  Nelson  Blake  to  take  subscriptions 
to  this  stock  and  by  the  ninth  of  April,  1890,  the  entire  capital  stock 
had  been  fully  subscribed  and  articles  of  incorporation  issued. 

Senator  Shelby  M.  Cullom  of  Illinois  next  introduced  a  bill  at 
Washington  providing  for  the  holding  of  a  "World's  Columbian  Ex- 
position of  the  Arts  and  Industries  in  commemoration  of  the  four 
hundredth  anniversary  of  the  discovery  of  America."  However,  as 
a  matter  of  policy,  he  was  careful  not  to  specify  in  his  bill  any  stated 
place  for  holding  this  exposition. 

As  soon  as  the  bill  had  been  introduced  and  the  idea  well  launched, 
a  number  of  other  cities,  seeing  the  probable  commercial  value  of  such 
a  venture,  attempted  to  have  the  proposed  fair  located  within  their 
limits.  Eventually  this  competition  resolved  itself  into  a  contest  be- 
tween four  large  cities,  each  of  which  offered  worthwhile  inducements 
for  securing  the  fair.  These  were  Xew  York,  St.  Louis,  Washington, 
and  Chicago. 


HISTORY  OF  BANKING  TX  ILLINOIS  265 

A  congressional  committee  was  appointed  to  listen  to  the  claims 
of  each  and  before  this  appeared  Mayor  Cregier,  Thomas  B.  Bryan, 
and  Edward  T.  Jeffery  of  Chicago.  These  gentlemen  pointed  out 
that  Chicago,  which  had  grown  from  a  frontier  camp  to  a  city  of  more 
than  one  million  inhabitants  in  a  little  over  fifty  years,  typified  the 
great  middle  west  and  should  be  made  known  to  visitors  both  from 
our  own  eastern  states  and  from  foreign  countries.  They  admitted 
that  New  York  might  offer  a  more  convenient  location  for  European 
visitors,  but  contended  that  in  addition  to  providing  a  means  for  show- 
ing Europe  something  more  of  America  than  its  visitors  had  so  far 
seen,  the  Chicago  location  would  be  far  more  central  for  visitors  from 
America.  At  that  time  Chicago  was  situated  at  almost  the  exact 
center  of  population  of  the  country.  They  also  pointed  out  that 
foreign  visitors  would  be  but  few  in  proportion,  as  their  numbers 
were  limited  to  the  capacity  of  incoming  passenger  ships.  Less  than 
one  hundred  thousand  cabin  passengers  had  been  landed  at  the  port 
of  New  York  during  the  year  1889. 

The  objection  Mas  raised  that  while  visitors  might  be  persuaded 
to  travel  as  far  as  Chicago,  it  was  not  likely  that  foreign  exhibitors 
would  be  equally  ready  to  send  suitable  displays  so  far,  but  the  gentle- 
men from  Chicago  were  ready  for  this  argument  also  and  Mr.  Bryan 
promptly  produced  numerous  citations  and  letters  from  prominent 
merchants  and  others  abroad  who  had  expressed  their  entire  satis- 
faction with  Chicago  as  a  location  for  the  exposition.  Undoubtedly 
the  argument  which  went  farthest  in  persuading  Congress  to  give 
the  fair  to  Chicago  was  a  map  of  the  city  presented  by  31  r.  Jeffery 
which  showed  a  large  number  of  suitable  sites  for  the  exposition 
grounds,  all  of  which  were  located  at  spots  where  comfortable  quarters 
for  visitors  could  be  arranged  nearby.  Furthermore,  Chicago  could 
back  her  arguments  with  the  five  million  dollar  stock  subscription  that 
had  been  taken  for  the  exposition.  So,  considering  its  centra  I  loca- 
tion, its  reputation  for  vigorous  action,  and  its  previous  preparation, 
Congress  awarded  Chicago  the  much  sought-after  prize. 

After  she  had  succeeded  in  creating  a  sentiment  throughout  the 
country  which  enabled  Congress  to  decide  in  her  favor,  Chicago  next 
faced  the  task  of  raising,  not  only  the  five  million  dollars  pledged  in 
stock  subscriptions,  but  a  great  deal  more  as  well.  Nor  by  any  means 
was  the  matter  ended  once  it  had  been  voted  to  give  the  fair  to  Chicago, 
for  almost  immediately  competing  cities,  still  hoping  for  a  reversal 
of  this  action,  began  to  doubt  the  possibility  that  Chicago  could  raise 


266  FINANCING  AN  EMPIRE 

the  five  million  dollars  which  she  said  she  had  already  pledged.  In 
time  these  criticisms  became  so  persistent  that  it  looked  very  much 
as  though  the  fair  would  be  lost  to  Chicago,  and  so  the  committees  set 
to  work  to  compile  and  classify  a  list  of  all  pledges  amounting  to  five 
hundred  dollars  or  more.  This  was  a  tremendous  task,  as  the  city 
had  been  thoroughly  canvassed  and  the  total  number  of  pledges  re- 
ceived amounted  to  more  than  twenty-eight  thousand.  A  large  force 
was  put  to  work  on  them  and  worked  both  day  and  night  until  the  list 
had  been  copied  from  the  books  and  classified. 

Then  a  committee  consisting  of  Lyman  J.  Gage,  Otto  Young, 
Edwin  Walker,  Thomas  B.  Bryan,  and  George  R.  Davis  set  out  for 
Washington  with  this  proof  of  Chicago's  willingness  and  ability  to 
support  the  fair  in  a  substantial  financial  way.  A  hearing  was  given 
these  men  before  the  House  Committee  on  the  World's  Fair,  but  noth- 
ing much  was  accomplished  until  the  list  came  into  the  hands  of  Sena- 
tor Charles  V.  Farwell  who  advised  the  committee  that  in  his  opinion 
it  would  not  be  worth  more  than  two  and  one-half  per  cent  to  guar- 
antee the  payment  in  full  of  all  the  subscriptions  of  five  hundred  dol- 
lars and  over — all  of  which  amounted  to  about  four  and  one-half 
million  dollars. 

This  statement  promptly  quieted  all  criticism,  but  just  as  it  again 
looked  as  if  Chicago  might  set  about  the  task  of  preparing  for  the 
great  exposition,  a  new  difficulty  arose.  Xew  York  now  contended 
that  she  was  willing  to  provide  ten  million  dollars  if  the  fair  could 
be  given  her.  Furthermore,  she  would  be  willing  to  pay  as  much  as 
another  five  million  for  a  suitable  site.  This  came  like  a  bolt  out  of 
a  clear  sky.  There  was  no  time  for  the  committee  from  Chicago  to 
consult  with  authorities  at  home — not  even  by  telegraph.  All  that 
they  were  given  was  a  few  minutes  of  conference  among  themselves. 
But,  knowing  of  Chicago's  ability  for  achievement  and  her  intense 
desire  for  the  fair,  they  promptly  pledged  their  city  to  raise  ten  million 
dollars  toward  the  project.  This  overruled  Xew  York's  claim  and 
once  more  the  fair  was  given  to  Chicago. 

As  soon  as  the  members  of  the  committee  were  released  from  the 
conference,  they  telegraphed  Chicago  of  their  new  action  and  then 
anxiously  waited  to  see  what  reception  would  be  given  their  message. 
Before  long  they  received  a  dispatch  which  read: 

"We  wish  you  continued  success  in  Washington.  We  will  stand 
by  you  and  the  committee  in  every  way.  Chicago  will,  as  in  the  past, 
prove  equal  to  every  emergency.     You  can  count  on  our  hearty  sup- 


"N 


EDWARD  T.  JEFFKRY 


MAYOR   DE  WITT   C.   CREGIER 
OF  CHICAGO 


HARLOW  X.  HIGIXBOTHAM 


THOMAS  B.  BRYAN 


MEN  PROM IX EXT  IX   SECURING  THE  WORLD'S  FAIR  FOR  CHICAGO 


HISTORY  OF  BANKING  IX  ILLINOIS  269 

port."  This  was  signed  by  S.  W.  Allerton,  capitalist;  John  B.  Drake, 
proprietor  of  the  Grand  Pacific  Hotel:  G.  B.  Shaw,  president  of  the 
American  Loan  and  Trust  Company;  C.  L.  Hutchinson,  president 
of  the  Corn  Exchange  Bank:  John  C.  Black,  president  of  the  Con- 
tinental National  Bank:  James  W.  Ellsworth;  W.  E.  Hale,  president 
of  the  Hale  Elevator  Company:  Potter  Palmer,  proprietor  of  the 
Palmer  House:  R.  T.  Crane,  president  of  Crane  Brothers  Manu- 
facturing Company:  II.  F.  Eames,  president  of  the  Commercial 
National  Bank:  A.  L.  Patterson,  Chicago  Glohe;  W.  J.  Huiskamp, 
Chicago  Times:  John  J.  P.  Odell,  president  of  the  Union  National 
Bank:  Victor  F.  Lawson,  Chicago  News;  E.  St.  John,  vice  presi- 
dent. Rock  Island  Railroad  Company:  Samuel  M.  Nickerson,  presi- 
dent, First  National  Bank :  William  T.  Baker,  president,  Chicago 
Board  of  Trade;  William  Penn  Nixon,  Chicago  Inter-Ocean;  John 
M.  Clark.  Collector  of  Customs;  Norman  B.  Ream,  capitalist;  O.  W. 
Potter,  president  Illinois  Steel  Company;  James  W.  Scott,  Chicago 
Herald;  Herman  H.  Kohlsaat,  capitalist:  C.  R.  Crane,  Crane  Bros. 
Manufacturing  Company;  Joseph  Medill,  Chicago  Tribune;  George 
Schneider,  president  National  Bank  of  Illinois;  George  R.  Davis. 
County  Treasurer:  Anthony  F.  Seeberger,  wholesale  hardware;  Stuy- 
vesant  Fish,  president  Illinois  Central  Railroad  Company;  J.  W. 
Doane,  president  Merchants  Loan  and  Trust  Company;  and  Eugene 
S.  Pike,  capitalist. 

In  spite  of  this  generous  support  of  the  action  the  committee  had 
taken,  it  was  not  to  be  an  easy  matter  to  secure  a  full  ten  million  from 
Chicago.  It  v%as  largely  through  the  efforts  of  Otto  Young  and  D. 
K.  Hill  that  the  first  five  million  had  been  pledged  and  to  secure  it, 
subscriptions  had  been  accepted  ranging  all  the  way  from  ten  dollars 
to  one  hundred  thousand.  The  almost  thirty  thousand  stockholders 
who  had  subscribed  to  the  original  offering  represented  men  and  wom- 
en from  every  walk  of  life.  Few  of  these  people  expected  ever  to  re- 
ceive in  return  any  considerable  amount  of  what  they  were  to  give, 
but  all  gave  for  the  glory  of  Chicago.  Some  few  did  hope  that  at  the 
close  of  the  exposition  there  might  be  some  division  of  profits  as  had 
been  the  case  of  the  exposition  held  at  Philadelphia  in  1876,  at  which 
time  about  one-third  of  the  amount  subscribed  had  been  returned,  but 
none  expected  that  the  Chicago  exposition  would  be  conducted  with 
profit  making  as  an  object.  As  a  matter  of  fact,  after  the  affairs  of 
the  exposition  had  been  settled,  fifteen  per  cent  was  returned,  and, 


270  FINANCING  AN  EMPIKE 

had  it  not  been  for  the  panic  of  that  year,  the  venture  would  doubt- 
less have  produced  a  great  deal  more. 

The  first  meeting  of  stockholders  was  held  on  April  10,  1890,  in 
a  building  known  as  "Battery  D"  on  the  lake  front.  Every  stock- 
holder was  represented  either  in-  person  or  by  proxy  and  so  large  and 
unwieldy  was  this  vast  group  that  for  a  time  it  looked  as  though  it 
would  not  be  possible  to  conduct  business.  However,  the  meeting  did 
succeed  in  electing  forty-five  directors  to  represent  it  and  from  that 
time  this  body  conducted  the  business  of  the  exposition. 

After  the  return  of  the  committee  which  had  pledged  Chicago's 
support  to  the  extent  of  ten  million  dollars,  the  stockholders  met  again 
on  June  12,  1890,  and  authorized  the  increase  of  the  capital  stock  to 
this  amount.  It  could  not  reasonably  be  expected,  however,  that  after 
the  vigorous  campaign  staged  to  raise  the  first  five  million,  this  could 
be  repeated  with  success.  A  committee,  appointed  for  the  purpose, 
looked  everywhere  for  a  means  of  accomplishing  this  financing  and, 
after  much  searching,  the  only  way  found  which  appeared  at  all  fea- 
sible was  the  issuing  of  bonds  by  the  City  of  Chicago.  One  great  ob- 
stacle stood  in' the  way  of  this  also,  for  Chicago  was  already  bonded 
to  the  debt  limit  allowed  by  the  State  Constitution.  The  only  possible 
remedy  was  to  amend  the  Constitution  and,  under  the  active  urgings 
of  the  committee,  Governor  Joseph  W.  Fifer  was  persuaded  to  con- 
vene a  special  session  of  the  Legislature  on  July  23,  1890,  which 
promptly  passed  a  joint  resolution  authorizing  an  amendment  to  be 
submitted  to  the  people  at  the  election  in  November.  This  empow- 
ered the  City  of  Chicago  to  issue  five  million  of  bonds  to  aid  the 
World's  Columbian  Exposition. 

Since  quick  action  was  necessary,  the  committee  on  finance  antici- 
pated the  vote  of  the  people  and  got  everything  in  readiness  so  that 
the  bonds  might  be  issued  immediately  after  they  had  been  ratified. 
The  City  Council  was  approached  and  every  detail  arranged  for  the 
prospective  bond  issue.  Immediately  after  the  vote  had  been  cast— 
which  was  nearly  unanimous — the  Council  was  in  a  position  to  adopt 
an  ordinance  directing  the  sale  of  five  million  five  per  cent  bonds  with 
the  condition  that  before  the  proceeds  should  be  paid  into  the  Exposi- 
tion treasury,  three  million  dollars  should  be  collected  from  stock  sub- 
scriptions. 

Two  per  cent  of  the  amount  of  stock  subscriptions  had  been  col- 
lected at  the  time  the  pledges  were  made.  Then  there  had  been  a  call 
for  an  additional  eighteen  per  cent  on  the  first  Monday  in  June,  1890. 


HISTORY  OF  BANKING  IN  ILLINOIS  .        271 

At  this  time  an  engraved  certificate  had  been  offered  as  a  premium  for 
payment  in  full  with  a  view  to  saving  the  work  and  expense  of  mak- 
ing future  collections — particularly  of  small  amounts.  All  this  had 
a  heady  provided  a  fund  of  more  than  one  million  dollars,  and  had 
convinced  the  committee  that,  all  delinquencies  considered,  there  was 
a  certainty  that  five  million  dollars  would  be  raised  from  such  sub- 
scriptions. In  addition  to  the  stock  originally  pledged,  the  committee 
was  taking  in  new  subscriptions  slowly  through  a  bureau  operated  for 
that  purpose.  It  was  hoped  that  in  this  way  another  full  five  million 
might  be  secured,  but,  as  a  matter  of  fact,  total  stock  subscriptions 
never  exceeded  six  million  in  all  and,  up  to  June  30,  1894,  the  com- 
pany had  realized  only  $5,614,425.86  from  this  source.  Nor  was  it 
to  be  expected  that  more  could  be  secured  from  a  community  that  had 
already  given  so  generously. 

After  the  election  the  financial  condition  of  the  company  was  sub- 
mitted to  the  World's  Columbian  Commission  which  had  been  ap- 
pointed by  Congress  and  after  investigating  all  the  evidence  presented, 
this  body  declared  itself  satisfied  that  an  actual  legally  binding  sub- 
scription existed  from  which  would  be  realized  five  million  dollars  and 
that  satisfactory  guarantees  existed  for  five  million  more.  This  meant 
that  Chicago  had  fully  complied  with  the  obligation  placed  on  her 
by  the  act  of  Congress  giving  her  the  fair.  Shortly  thereafter  satis- 
factory arrangements  were  also  made  for  the  site  on  which  the  build- 
ings would  be  located  and  plans  were  sufficiently  consummated  so 
that  the  Board  was  placed  in  a  position  to  ask  for  the  issuance  of  the 
President's  invitation  to  the  nations  of  the  world  to  participate  in 
the  Exposition.     This  was  issued  on  December  24,  1890. 

Until  this  invitation  had  been  given  and  some  response  received, 
there  was  no  way  in  which  the  Exposition  Board  of  Directors  could 
know  to  what  dimensions  the  fair  would  reach,  what  amount  of  money 
would  be  required  to  finance  it,  or  how  much  of  that  amount  would  be 
contributed  by  exhibitors.  Beyond  that  the  only  funds  that  could  be 
definitely  counted  on  were  the  ten  million  which  Illinois  had  raised, 
whatever  additional  amount  might  accrue  from  the  further  sale  of 
stock,  a  building  on  the  grounds  and  an  exhibit  from  the  United 
States  Government,  and  an  appropriation  from  the  Legislature  of 
the  State  of  Illinois  for  a  building.  In  fact,  it  was  not  until  February 
20,  1891.  that  the  Budget  Committee  was  able  to  prepare  a  budget 
of  working  proportions.  This,  while  carefully  itemized,  still  omitted 
many  things  which  were  later  found  to  be  indispensable  and  yet  it 


•272  FINANCING  AN  EMPIRE 

called  for  an  amount  of  $17,625,453.  It  actually  fell  short  of  expendi- 
tures by  several  million  dollars.  For  construction  alone  the  figures 
in  the  budget  were  six  million  dollars  less  than  actual  costs,  but  this 
may  have  been  due  not  so  much  to  poor  planning  on  the  part  of  the 
committee  as  to  poor  execution  of  orders  on  the  part  of  the  builders 
a  large  number  of  whom  were  artists  unacquainted  with  business 
and  much  more  eager  to  give  adequate  expression  to  their  talents  than 
to  stay  within  allotted  expenditures. 

A  second  call  for  a  twenty  per  cent  payment  on  the  capital  stock 
was  made  for  June  1,  1891,  as  by  this  time  construction  was  under 
way  and  heavy  payments  began  to  fall  due.  September  1,  1891,  was 
set  as  the  date  for  the  third  installment  of  twenty  per  cent.  Had  each 
of  these  payments  been  made  in  full  by  every  stockholder  they  would 
easily  have  realized  more  than  the  three  million  dollars  required  before 
the  bonds  to  be  issued  by  the  City  government  could  be  secured.  How- 
ever, there  were  so  many  delinquencies  that  the  amount  fell  far  short 
of  three  million  and  resort  had  to  be  made  to  collection  through  solic- 
itors, through  the  courts,  and  by  various  other  means,  and  still  the 
amount  fell  short.  Finally,  to  reach  the  desired  figure  without  calling 
for  a  fourth  installment  which,  it  was  anticipated,  would  be  badly 
needed  in  the  future,  the  Directors  offered  a  premium  of  two  tickets 
of  admission  for  each  share  of  stock  paid  up  in  full  before  a  certain  date. 
This  offer  produced  excellent  results,  and  by  the  middle  of  Septem- 
ber the  city  was  requested  to  sell  its  bonds  and  pay  the  proceeds  to 
the  Fxposition  treasury. 

Three  million  dollars  of  Chicago  city  bonds  were  sold  to  Blair 
and  Company  of  Xew  York  on  January  7,  1892,  at  par  and  interest 
to  be  delivered  and  paid  for  as  follows: 

$1,000.000 February     1,  1892 

.500.000 February  15,  1892 

500,000 March  1,  1892 

.500,000 March         1.5,  1892 

.500,000 April  1,  1892 

Blair  and  Company  were  also  given  an  option  to  purchase  the  re- 
maining two  million  of  the  issue  before  a  certain  date.  This  was 
taken  up  during  the  spring  and  summer,  so  that  by  August,  1892, 
the  entire  amount  had  been  paid  to  the  treasury. 

The  fourth  installment  of  twenty  per  cent  on  the  stock  was  paid 
in  on  April  1.5,  1892,  and  the  last  one  on  June  1.5.    After  that  the  com- 


HTSTORY  OF  BANKING  IN  ILLINOIS  2Ti 

pany  had  gathered  into  its  treasury  all  the  resources  then  available. 
Expenditures  were  crowding  in  at  a  great  rate  and  something  had  to 
be  done  to  meet  them. 

The  Board  then  determined  that  an  appeal  must  be  made  to  Con- 
gress for  proper  financial  recognition  at  its  next  meeting  in  Decem- 
ber, 1891.  In  preparation  for  submitting  its  case,  an  elaborate  report 
was  prepared  which  pointed  out  that  this  was  to  be  the  most  extensive 
exposition  that  had  yet  been  held  anywhere,  that,  instead  of  housing 
all  departments  together  as  had  previously  been  done,  each  would  now 
have  not  only  its  own  building  but  its  own  section  of  the  grounds  as 
well.  At  the  same  time  the  department  of  promotion  and  publicity 
used  every  effort  at  its  command  to  spread  reliable  information  and 
create  a  favorable  sentiment  regarding  the  Exposition. 

All  these  efforts  brought  from  Congress  some  recognition  of  the 
fact  that  financial  help  was  needed,  but  at  first  it  seemed  about  to 
terminate  in  the  offer  of  a  loan  in  the  form  of  bonds  which  must  con- 
stitute a  first  lien  on  the  assets  and  proceeds  of  the  Exposition.  It 
was  not  possible  for  the  committee  to  contemplate  such  a  loan  in  view 
of  the  bond  issue  that  had  already  been  given  by  the  City  of  Chicago 
and  which  would,  of  necessity,  be  junior  in  lien  to  any  that  the  United 
States  Government  might  make.  It  was  not  a  bond  issue  that  was 
needed  now  but  an  appropriation  in  the  form  of  a  gift. 

A  subcommittee  of  the  Committee  on  Appropriations  of  the  House 
of  Representatives  visited  Chicago  on  March  30,  1892,  to  make  an 
investigation.  This  committee  remained  in  the  city  until  April  8  at 
which  time  it  adjourned  to  Washington  to  continue  its  deliberations. 
On  May  20  it  presented  a  report  to  the  House  which  was  so  complete 
as  to  cover  six  hundred  and  eighty-nine  pages  of  printed  matter.  It 
included  estimates  of  the  total  receipts  and  disbursements  expected 
and  gave  almost  seventeen  million  as  its  estimate  of  expenditures  up 
to  May  1,  1893.  In  spite  of  the  fact  that  Congress  urged  great  econ- 
omy in  this  regard,  the  committee  found  that  it  could  not  do  other- 
wise than  suggest  that  as  yet  it  was  impossible  to  estimate  too  closely 
and  it  was  to  be  expected  that  expenditures  might  exceed  the  esti- 
mated figure.     In  closing,  the  report  said: 

"Your  committee  expresses  without  reserve  its  confidence  in  the 
assured  success  of  the  Exposition.  In  every  essential  feature  it  stands 
unrivaled  in  all  time.  Fifty-six  nations  and  colonies  have  accepted 
the  invitation  to  participate  in  the  enterprise,  and  have  appropriated 
$3,783,000  for  that  purpose.    It  is  expected  that  twenty  other  foreign 


274  FINANCING  AN  EMPIRE 

nations  will  also  be  represented.  Complete  exhibits  will  be  made  by 
all  countries  which  promise  attendance,  twenty-six  of  which  will  erect 
special  buildings  for  their  own  displays.  Thirty  states  and  territories 
of  our  own  republic  will  erect  buildings  and  make  special  exhibits,  for 
which  $3,182,500  has  already  been  provided.  It  becomes  obvious, 
therefore,  that  the  expenditures  of  the  local  corporation,  of  individual 
enterprise  of  the  states  and  territories,  and  of  our  own  and  all  foreign 
governments,  will  reach  the  stupendous  aggregate  of  not  less  than 
thirty  million  dollars  for  Exposition  purposes.  In  its  scope  and  mag- 
nificence the  Exposition  stands  alone.  There  is  nothing  like  it  in  all 
history.  It  easily  surpasses  all  kindred  enterprises,  and  will  amply 
illustrate  the  marvelous  genius  of  the  American  people  in  the  great 
domains  of  agriculture,  commerce,  manufactures,  and  inventions, 
which  constitute  the  foundation  upon  which  rests  the  structure  of  our 
national  glory  and  prosperity." 

After  the  presentation  of  this  report,  vigorous  efforts  were  made 
to  secure  the  passage  of  a  bill  appropriating  five  million  dollars  to 
the  aid  of  the  Exposition.  But,  a  presidential  election  was  approach- 
ing and  no  legislation  could  be  secured  which  might  in  any  way  dis- 
criminate against  the  ruling  powers  in  Congress.  It  was  again  inti- 
mated that  if  a  loan  instead  of  an  appropriation  would  be  accepted, 
this  kind  of  aid  might  be  forthcoming.  But  the  Board  of  Directors 
refused  such  assistance.  Its  members  were  deeply  conscious  of  the 
justice  of  their  demands  and  refused  to  be  put  in  an  attitude  of  sup- 
pliants for  favor. 

Throughout  June  and  July  the  struggle  continued  and  the  time 
approached  for  Congress  to  adjourn.  The  Directors  knew  that  un- 
less some  help  came  from  this  session,  none  ever  could  be  had,  but 
even  so  they  did  not  feel  that  a  bond  issue  could  be  accepted,  and 
agreed  that  such  would  be  rejected  if  it  were  offered.  It  was  also 
agreed  that  in  the  event  no  appropriation  were  made  by  Congress, 
and  in  spite  of  all  difficulties,  another  loan  would  be  raised  in  Chicago. 

At  this  point  there  was  conceived  another  method  by  which  the 
desired  result  might  be  secured.  A  bill  was  prepared  and  introduced 
which  instructed  the  Secretary  of  the  Treasury  to  have  coined  out 
of  the  subsidiary  coin  in  the  Treasury,  five  million  dollars  worth  of 
souvenir  half-dollars,  to  be  known  as  Columbian  half-dollars,  which 
would  carry  appropriate  devices  and  designs,  and  that  these  coins 
were  to  be  paid  to  the  Exposition  upon  receipt  of  estimates  and  vouch- 
ers certified  to  by  its  President  and  by  the  Director  General,  "for 


HISTORY  OF  BANKING  IN  ILLINOIS  275 

the  purpose  of  completing  in  a  suitable  manner  the  work  of  prepara- 
tion for  inaugurating  the  World's  Columbian  Exposition." 

In  the  House,  action  on  this  bill  was  delayed  from  time  to  time. 
In  the  Senate,  however,  the  general  feeling  was  more  friendly  and  it 
was  there  that,  as  the  outlook  for  anything  being  done  in  the  House 
became  less  and  less  promising,  the  new  bill  was  attached  to  the 
Sundry  Civil  Bill  in  the  hope  that  the  latter,  with  which  the  House 
was  in  sympathy,  would  go  through  with  the  Souvenir  Coin  Bill  at- 
tached. However,  such  was  not  to  be  the  case.  After  much  debate 
and  a  remarkable  instance  of  "filibustering"  at  a  time  when  the  days 
were  very  hot  and  members  of  both  houses  were  impatient  for  adjourn- 
ment, it  seemed  best  to  close  the  matter  by  agreeing  upon  a  compro- 
mise. The  Senate  amendment  was  stricken  from  the  Sundry  Civil 
Bill  and  in  its  place  a  bill  was  introduced  for  the  appropriation  of 
$2,500,000  in  Columbian  half-dollars.  This  bill  promptly  passed  and 
became  a  law  by  the  approval  of  the  President  on  August  5,  1892. 
The  appropriation  was  accompanied  by  only  one  condition — that  the 
Exposition  should  be  closed  to  the  public  on  Sundays. 

Since  this  two  and  one-half  million  dollars  was  not  nearly  enough 
to  meet  the  needs  of  the  Exposition,  steps  were  taken  at  once  to  float 
an  issue  of  five  million  dollars  of  World's  Columbian  Exposition  six 
per  cent  debentures.  At  first  only  four  million  of  these  were  author- 
ized with  the  proviso  that  the  entire  issue  would  not  exceed  five  mil- 
lions. Before  long,  however,  it  was  found  necessary  to  add  the  fifth 
million.  i 

A  thorough  canvass  of  the  city  of  Chicago  was  made  for  the  sale 
of  these  debentures  and  while  wealthy  citizens  and  banks  generously 
purchased  them  to  the  utmost  of  their  ability,  and  the  financial  insti- 
tutions even  entered  into  an  agreement  among  themselves  to  take 
bonds  up  to  an  amount  of  five  per  cent  of  their  capital  and  surplus, 
only  $3,600,000  of  them  could  be  sold.  This  issue — dated  November 
1,  1892,  redeemable  at  the  option  of  the  company  after  May  1,  1893, 
absolutely  redeemable  on  January  1,  1894,  and  payable  in  install- 
ments of  not  less  than  twenty  per  cent  of  their  face  value  at  any 
time — did  not  appear  on  the  market  until  the  panic  of  1893  had  begun 
to  settle  and  so  were  not  sufficiently  attractive  to  enable  the  entire 
five  million  to  be  floated. 

Meantime,  along  with  the  sale  of  debentures,  the  committee  in 
charge  attempted  also  to  sell  the  souvenir  half-dollars  at  twice  their 
face  value — hoping  thus  actually  to  realize  the  five  million  dollars 


276  FINANCING  AX  EMPIRE 

which  Congress  had  refused  to  supply.  The  first  lot  of  these  coins 
was  not  received  until  during  December,  1892,  and  they  quickly  sold 
at  the  fifty  cent  premium.  But  once  they  had  started  coming,  the 
mint  sent  subsequent  installments  at  such  a  rate  that  the  supply  soon 
exceeded  the  demand  of  souvenir  collectors  and  it  was  no  longer  pos- 
sible to  sell  the  coins  at  a  dollar  each.  After  a  time  a  million  dollars 
in  these  coins  had  accumulated  which  could  not  be  sold  at  a  premium, 
so  the  banks  of  Chicago  once  more  came  to  the  rescue  and  this  time 
took  the  coins  and  held  them  as  legal  reserve  in  their  vaults,  issuing 
to  the  Exposition  in  their  place  a  loan  for  their  par  amount  without 
interest.  The  banks  to  which  the  Exposition  turned  for  this  assist- 
ance were  the  First  National,  the  Union  National,  the  Commercial 
National,  the  Continental  National,  the  Metropolitan  National,  the 
Northwestern  National,  the  National  Bank  of  Illinois,  the  Illinois 
Trust  and  Savings  Bank,  the  Corn  Exchange  Bank,  the  Northern 
Trust  Company,  and  the  American  Exchange  National  Bank. 

In  February,  1893,  another  severe  blow  was  dealt  the  finances  of 
the  enterprise  when  Congress  decided  that  the  Treasurer  should  with- 
hold $570,880  of  the  Columbian  half  dollars  still  forthcoming  as  se- 
curity for  the  expenses  of  the  judges  and  awards  for  exhibits.  Since 
these  coins  had  been  issued  only  for  the  purpose  of  completing  the  Ex- 
position, this  new  step  on  the  part  of  Congress  was  obviously  unjust 
and  would  not  have  been  countenanced  or  even  attempted  between 
individuals  or  business  concerns.  Nevertheless,  Congress  had  its 
way  and  this  considerable  amount  was  taken  out  of  the  building 
budget  for  the  purpose  of  making  awards.  Later  because  of  this 
broken  contract,  it  was  decided  that  the  stipulation  against  opening 
the  Fair  on  Sundays  was  not  valid  and  the  Exposition  was  kept  open 
every  day  of  the  week. 

To  meet  this  new  deficit,  the  directors  then  undertook  to  dispose 
of  more  of  the  unsold  Exposition  debentures.  The  railroad  compa- 
nies which  operated  into  Chicago  were  now  chosen  as  suitable  pros- 
pects because,  once  they  were  made  to  understand  that  speedy  finan- 
cial assistance  was  necessary  to  avert  a  crisis  in  the  affairs  of  the  Ex- 
position to  which  they  looked  for  large  profits  that  would  even- 
tually accrue  to  themselves,  they  would  doubtless  be  willing  to  sub- 
scribe to  the  best  of  their  ability.  This  proved  to  be  the  case  and 
when  the  proposition  was  placed  before  them  these  companies  took  a 
total  of  eight  hundred  and  fifty  thousand  dollars  of  the  debentures  in 
the  following  amounts: 


HISTORY  OF  BANKING  TX  ILLINOIS  277 

Pennsylvania  Lines $140,000 

Chicago,  Burlington  &  Quincy 100,000 

Chicago,  Milwaukee  &  St.  Paul 100,000 

Chicago  &   Northwestern 100,000 

Chicago,  Rock  Island  &  Pacific 100,000 

Lake  Shore  &  Michigan  Southern 100,000 

Michigan  Central 50,000 

Illinois  Central 100,000 

Chicago  &  Alton 00,000 

After  these  subscriptions  had  been  received,  there  remained  $440,- 
.500  of  the  Exposition  debentures  still  unsold  and  the  money  market 
had  by  this  time  become  so  tight  that  they  could  not  be  moved,  no 
matter  what  methods  were  employed. 

So,  because  times  were  difficult,  after  the  money  had  been  received 
from  the  railroads  on  their  purchases  of  debentures  and  from  the 
hanks  of  Chicago  against  the  souvenir  coins,  there  remained  no  other 
source  from  which  the  directors  could  secure  further  funds.  For  a 
time  the  financial  outlook  for  the  Fair  seemed  anything  but  pleasant 
but,  as  usual,  good  fortune  was  ready  to  appear  just  at  the  critical 
moment  and  this  time  it  took  the  form  of  bringing  the  opening  date 
—May  1,  1893 — just  as  the  last  of  these  resources  had  been  expanded. 
For  three  years  there  had  been  a  constant  struggle  to  provide  means 
for  making  the  opening  day  a  success.  With  its  final  arrival,  the 
financial  problem,  so  far  as  it  related  to  the  raising  of  funds  sufficient 
to  open  the  Exposition,  had  been  solved  and  the  long  period  of  dis- 
bursement without  earnings  was  at  an  end. 

By  a  special  act  of  Congress,  approved  May  12,  1892,  it  was  pro- 
vided that  any  national  bank  in  the  city  of  Chicago  might  establish 
and  operate  a  branch  on  the  grounds  of  the  Columbian  Exposition 
for  a  period  of  not  more  than  two  years  beginning  not  earlier  than 
July  1,  1892,  and  closing  not  later  than  July  1,  1894. 

The  Chemical  National  Bank  secured  permission  under  this  act 
to  establish  a  branch  on  the  Fair  grounds,  but  within  eight  days  after 
the  Exposition  opened  the  parent  bank  failed  and  so  the  only  branch 
national  bank  that  up  to  that  time  had  ever  been  authorized  by  act 
of  Congress,  went  out  of  existence.  But  even  within  the  short  time 
of  its  operation  more  than  eighty  thousand  dollars  had  been  taken  in 
belonging  to  exhibitors,  concessionaires,  and  visitors.  Manv  of  these 
people  were  from  miles  away — some  even  from  foreign  countries — 
and  the  failure  left  them  stranded  without  funds.     Not  onlv  was  this 


278  FINANCING  AN  EMPIRE 

a  catastrophe  to  the  depositors  of  the  bank,  but  at  first  it  looked  as 
though  the  failure  might  so  destroy  confidence  as  to  utterly  ruin  the 
success  of  the  Exposition.  Much  criticism  was  brought  on  the  Direc- 
tors of  the  Fair  for  having  permitted  a  bank  to  open  on  the  grounds 
when  it  was  in  such  a  weak  condition  that  it  must  be  one  of  the  first 
to  succumb  in  the  panic.  However,  in  their  investigation  of  the  bank's 
affairs,  the  Directors  had  not  seen  anything  to  indicate  an  unstable 
condition.  The  bank  was  comparatively  new,  but  it  had  a  capital  of 
one  million  dollars  and  was  believed  to  be  under  conservative  man- 
agement. It  had  offered  a  fair  and  advantageous  contract  to  the  Ex- 
position for  the  privilege  of  doing  business  on  the  grounds  and  had 
been  largely  instrumental  in  securing  the  passage  of  the  act  of  Con- 
gress permitting  such  a  branch.  Since  no  other  leading  bank  had 
appeared  willing  to  go  to  so  much  trouble  and  expense,  the  Chemical 
National  had  been  awarded  the  contract  without  further  question. 
In  older  to  avoid  bringing  great  discredit  on  Chicago  and  to  avert 
disaster  for  the  Exposition,  something  had  to  be  done  very  promptly. 
One  of  the  Directors,  Erskine  M.  Phelps,  suggested  that  immediate 
steps  be  taken  to  pay  the  claims  of  all  depositors  and  he  went  so  far 
as  to  offer  to  be  one  of  six  to  defray  the  whole  amount.  This  sugges- 
tion came  on  the  night  of  May  9  before  the  failure  had  been  generally 
announced  in  the  papers  and  before  it  was  jmssible  to  determine  the 
amount  of  deposits  which  had  been  held  by  the  Exposition  branch. 
A  little  later  when  Exposition  President  Harlow  N.  Higinbotham 
learned  from  the  officers  of  the  bank  that  the  exact  amount  would  be 
somewhere  between  eighty  thousand  and  one  hundred  and  thirty-five 
thousand  dollars,  he  got  in  touch  with  a  number  of  prominent  men 
by  telephone  who  immediately  guaranteed  to  take  care  of  the  whole 
debt.  A  few  days  later  each  of  the  following  sent  in  a  check  for  his 
share  of  the  total,  and  the  claims  of  all  depositors  were  paid.  These 
gentlemen  were  later  reimbursed  by  the  Receiver  of  the  bank: 

William  T.  Baker  Ferdinand  W.  Peck 

Edward  B.  Butler  Erskine  M.  Phelps 

William  J.  Chalmers  Washington  Porter 

Arthur  Dixon  George  M.  Pullman 

J.  W.  Doane  Norman  B.  Ream 

Lyman  J.  Gage  Martin  A.  Ryerson 

Harlow  N.  Higinbotham  George  Schneider 

Charles  L.  Hutchinson  Charles  H.  Schwab 

Elbridge  G.  Keith  Byron  L.  Smith 

William  D.  Kerfoot  Albert  A.  Sprague 


> 


^ 


> 


HISTORY  OF  BANKING  IN  ILLINOIS  ►  281 

Milton  W.  Kirk  Melville  E.  Stone 

Herman  H.  Kohlsaat  Charles  H.  Wacker 

Edward  F.  Lawrence  Edwin  Walker 

Thies  J.  Lefens  Robert  A.  Waller 

Andrew  McNally  G.  H.  Wheeler 

John  J.  Mitchell  Frederick  S.  Winston 

Adolph  Nathan  Otto  Young 

By  direction  of  the  Executive  Committee,  President  Harlow  N. 
Higinbotham  on  May  22,  invited  the  Northern  Trust  Company  to 
open  a  branch  bank  in  the  offices  of  the  Chemical  National  branch  in 
the  Administration  Building.  This  was  accepted  and  the  new  bank 
opened  on  June  12.  It  continued  business  until  November  18  when 
the  books  and  accounts  were  transferred  to  the  main  office. 

This  was  a  most  important  step,  as  the  Fair  grounds,  located  at 
a  great  distance  from  downtown  banking  institutions,  were  in  need 
of  a  bank  where  daily  receipts  might  be  properly  cared  for.  For  a 
time  the  Northern  Trust  Company  sent  an  express  wagon  around 
to  its  depositors  on  the  grounds  each  day  to  collect  their  funds,  but 
later  on  found  it  best  to  open  a  second  branch  on  the  Midway  in  a 
room  offered  by  the  Egypt-Chicago  Exposition  Company  in  Cairo 
Street.  So,  a  Chicago  bank  was  established  in  a  setting  of  bazaars 
of  the  east  and  in  the  midst  of  one  of  the  most  prominent  exhibits  on 
the  Midway. 

These  branches  of  the  Northern  Trust  Company  were  never  run 
for  profit,  but  merely  as  an  accommodation  to  the  Directors  of  the 
Exposition.  As  a  matter  of  fact,  their  net  profit  was  quite  small, 
largely  because  of  the  delayed  opening.  By  June  12  many  who  would 
have  been  its  customers  had  already  taken  their  accounts  to  other  in- 
stitutions in  the  city,  and  in  the  eyes  of  some,  after  the  failure  of  the 
Chemical  National  Bank,  no  banking  institution  on  the  Fair  grounds 
was  to  be  trusted.  Nevertheless,  in  its  report,  the  Northern  Trust 
Company  showed  that  it  had  handled  large  sums  through  these 
branches.  This  report  included  the  following  items  which  are  of  gen- 
eral interest: 

Total  amount  of  business  handled $38,181,818.00 

Total  deposits 22,012,500.22 

Total  amount  deposited  by  the  Exposition  Com- 
pany      11,384,741.92 

Deposits  taken  in  at  Midway  branch 1,873,930.00 

Largest  amount  deposited  in  any  one  day  (Oc- 
tober 10,  day  after  Chicago  day) 456,116.73 


282  FINANCING  AN  EMPIRE 

Greatest  amount  on  deposit  at  any  one  time 

(October  26)   1,593,593.75 

During  the  early  weeks  of  the  Fair  as  the  panic  grew,  attendance 
fell  off  and  there  was  general  distress  among  those  who  were  doing 
business  on  the  grounds.  In  June,  however,  the  attendance  began 
to  grow  rapidly  and,  whereas  the  average  paid  attendance  in  May 
had  been  but  37,510  a  day,  the  following  month  it  rose  to  89,170. 
Total  receipts  from  all  sources  during  May  amounted  to  $583,031.25, 
while  in  June  they  were  $1,256,180.  This  increase  made  possible 
payments  on  the  floating  debt  and  some  headway  was  gained  in  clear- 
ing away  the  unpaid  obligations  that  were  pressing  for  settlement. 
By  the  end  of  the  summer  it  was  plain  that,  in  spite  of  the  panic  and 
the  many  other  difficulties  that  had  beset  the  Fair,  a  financial  and 
popular  success  had  been  achieved. 

On  August  3  the  Executive  Committee  authorized  the  payment  of 
an  installment  of  ten  per  cent  on  the  Exposition  bonds.  This  was 
made  possible  because  during  the  first  three  months  there  had  been 
received  from  admissions  and  concessions  the  sum  of  $4,171,953.38, 
while  operating  expenses  had  been  only  $1,822,672.37.  Most  of  the 
pressing  obligations  had  been  paid  by  this  time  and  a  large  part  of 
those  still  remaining  were  not  yet  due.  Under  these  circumstances  it 
was  deemed  best  to  declare  the  ten  per  cent  dividend  to  bondholders 
so  that,  in  the  event  of  the  failure  of  the  Exposition  financially,  they 
might  share  in  the  assets  on  a  basis  somewhat  equal  to  other  creditors. 
Since  the  total  bonded  debt  amounted  to  $4,444,500,  this  payment 
was  for  $444,450.  As  receipts  continued  in  satisfying  amount,  a 
second  payment  of  ten  per  cent  was  made  on  the  bonds  on  August 
30  and  the  third,  fourth,  and  fifth  installments  were  paid  on  Septem- 
ber 7,  15,  and  22,  respectively.  On  September  29  twenty  per  cent 
was  paid  and  the  remainder  was  paid  off  together  with  the  interest  on 
October  9  which  was  celebrated  as  Chicago  Day.  In  all,  this  last 
thirty  per  cent  payment,  together  with  the  accrued  interest,  amounted 
to  $1,565,310.76. 

As  early  as  the  beginning  of  September  it  was  plain  that  the  Ex- 
position would  receive  enough  patronage  to  enable  it  to  discharge  all 
obligations  and  have  a  surplus  greater  than  necessary  for  closing  its 
affairs.  But  the  real  success,  financially  speaking,  was  to  culminate 
in  October  when,  on  three  successive  days,  the  attendance  registered 
1,325,452  people.    A  great  enthusiasm  which  had  now  developed  for 


r^7 


"v 


TREASURER'S  OFflCE. 


.••*  •.*•• 


The  World's  C6V6mM>tI:siM§tion. 


Paymtnl  of  Voucher 


No  £j  S  1.  S  1/  .:„. 


ChicaeoOcXcAUKi  0^  ,s95     No.  p      361 


Pay  to  the  ordfr  nOxXAfflOVrS  CJr^.V^UUAX^CLUWtVCiAVdCliiUV1  ^AUMU/      ||^  (J§\  5    I    ol  2k 


ILLINOIS  TRUST  &  SAVINGS  BANK, 

CHICAGO. 


V6A??y&rr 


FACSIMILE  OF  THE  CHECK  WITH  WHICH  THE  FINAL  INDEBTEDNESS  OF  THE 

BONDS  WAS  PAID 


OFFICE   OF    THE    NORTHERN    TRLST    COMPANY    IN    THE    ADMINISTRATION 

BUILDING 


HISTORY  OF  BANKING  IN  ILLINOIS  ^  285 

the  Fair  not  only  caused  visitors  to  encourage  others  to  go,  but  led 
many  to  return  time  and  again  to  see  the  splendid  sight. 

When  the  Exposition  was  closed  on  October  30,  there  were  suffi- 
cient funds  to  meet  all  obligations  and  declare  a  fifteen  per  cent  divi- 
dend on  the  stock.  "When  a  final  settlement  was  made  on  June  1, 
1894,  it  was  found  that  the  total  disbursements  of  the  Exposition  Com- 
pany alone  had  amounted  to  $27, 245, 566. 90  and  the  estimate  of  thirty 
million  for  all  expenditures,  which  had  been  made  by  the  Committee 
on  Appropriations  of  the  House  of  Representatives  some  two  years 
before,  had  been  far  too  small. 

As  is  to  be  expected  of  so  enormous  an  undertaking,  the  World's 
Fair  had  a  marked  and  lasting  effect  on  the  development  of  the  city 
of  Chicago.  The  widespread  overtrading  and  expansion,  everywhere 
evident  in  1890  and  1891,  were  marked  in  Chicago  particularly  by 
a  boom  in  real  estate.  This  was  especially  intensive  in  the  city  because 
of  its  tendency  toward  rapid  growth,  but  had  it  not  been  for  the  Fair, 
the  boom  must  have  been  followed  by  a  collapse  long  before  it  had 
succeeded  in  bringing  any  great  development  to  sections  as  far  from 
the  city  as  that  in  which  the  Fair  grounds  were  ultimately  located. 
Preparations  for  the  Fair,  however,  brought  an  era  of  development 
for  the  territory  surrounding  the  city  that  was  phenomenal.  New 
business  enterprises  were  established  and  these  built  up  a  circle  of 
small  towns  about  Chicago,  such  as  Harvey,  Chicago  Heights,  West 
Pullman,  and  South  Waukegan  (now  North  Chicago).  All  this 
brought  about  rapid  extensions  of  roads  and  railways  to  take  care  of 
the  new  communities. 

During  the  period  when  various  sites  were  being  considered  as 
suitable  for  the  Fair  grounds,  each  new  plot  under  consideration  was 
made  the  storm  center  for  the  real  estate  boom.  Frequently  property 
close  to  a  proposed  site — later  not  used — was  sold  at  fabulous  figures 
and  re-sold  several  times  at  a  profit  before  it  became  known  just  where 
the  Fair  grounds  would  be.  Every  corner  became  a  prospective  hotel 
site  and  every  large  open  space  assumed  value  as  a  possible  entertain- 
ment project.  When  finally  the  Jackson  Park  location  was  definitely 
agreed  upon,  hundreds  of  apartment  houses  were  built  to  compete 
with  one  another  for  lodgers  during  the  Fair  season  and  later  to  com- 
pete with  all  parts  of  the  city  for  tenants.  The  effect  of  the  Fair 
on  the  district  around  Jackson  Park  was  remarkable.  In  but  a.  few 
months'  time,  rapid  transit  was  secured  which  ordinarily  would  have 
come  only  through  months  or  years  of  normal  development. 


286 


FINANCING  AN  EMPIRE 


After  the  Fair  the  combination  of  good  railroad  transportation 
and  cheap  rentals  resulted  in  a  general  movement  of  tenants  from 
all  parts  of  the  city  to  the  district  surrounding  Jackson  Park,  which 
made  for  the  permanent  growth  of  that  section. 

Nor  was  the  commercial  benefit  confined  to  the  newly  developed 
south  side  of  the  city,  but  downtown  districts  seemed  to  share  almost 
equally  in  the  expansion.  During  this  period  a  number  of  large  new 
office  buildings  were  erected  and  some,  not  very  old,  structures  were 
torn  down  to  make  way  for  larger,  more  modern  buildings. 

One  beneficial  effect  of  the  Fair  which  should  be  recorded  is  the 
increased  interest  in  the  development  of  Chicago  along  artistic  lines. 
Particularly  in  the  field  of  banking  did  good  architecture  come  into 
being.  The  example  that  had  been  set  by  the  splendid  buildings  in 
Jackson  Park  was  carried  into  much  of  the  new  building  of  a  perma- 
nent nature  that  followed.  No  longer  was  Michigan  Boulevard  the 
only  show  street  of  the  city,  but  thereafter  La  Salle  Street,  the  bank- 
ing center,  rapidly  developed  into  one  of  the  finest  financial  streets  of 
the  world. 


(1,'ourtesy   Central    Trust   Company) 

THE  WORLD'S  COLUMBIAN   EXPOSITION  OF  1893 

From  painting  on  the  walls  of  the  Central  Tmst   Company  of  Illinois 


CHAPTER  XVI 

PERIOD   OF   DEPRESSION   AND   THE    SILVER    CON- 
TROVERSY 

Four  years  of  depression  with  railroad,  labor,  and  other  troubles,  due  in  part  to  doubtful 
money  standard — Agitation  for  abandoning  gold  standard — Politics  and  the  silver 
agitation — Railroad  riots  of  1894 — Morgan-Belmont  Syndicate  and  return  of  con- 
fidence— Cuban  controversy — Democratic  stand  for  free  silver — History  of  the  silver 
movement — Bryan — Panic  of  1896 — Closing  of  the  Chicago  Stock  Exchange — How 
Chicago's  wheat  prices  aided  the  gold  standard — Failure  of  the  National  Bank  of 
Illinois — Improving  conditions  in  1897,  1898  and  1899 — Attempted  reversions  to 
bi-metallism — Lyman  J.  Gage — Indianapolis  Monetary  convention — Charles  G. 
Dawes'  plan  for  currency  reform — Decline  of  the  silver  party — War  with  Spain — 
Figures  on  the  Illinois  bank  situation. 

While  it  was  confidently  hoped  that  a  healthy  reaction  would  set 
in  early  in  181)4,  no  such  thing  took  place,  and  the  depression  which 
had  settled  upon  the  industrial,  commercial,  and  financial  world  did 
not  let  up  to  any  noticeable  extent  until  1898.  In  the  spring  of  1894 
general  want  and  distress  were  so  great  as  to  result  in  labor  strikes 
and  riots.  While  these  were  experienced  in  many  parts  of  the  coun- 
try, the  worst  of  them  centered  in  and  about  Chicago.  That  same 
year  there  were  one  hundred  and  fifty-six  railways  with  approximately 
thirty-nine  thousand  miles  of  road  in  the  hands  of  receivers.  New 
railway  construction  had  practically  stopped,  as  was  to  be  expected 
in  a  situation  where  even  such  great  systems  as  the  Erie,  the  North- 
ern Pacific,  and  the  Union  Pacific  had  failed.  Then  to  add  further 
to  all  these  difficulties,  in  1894  the  corn  crop  failed  and  other  crops 
the  country  oyer  were  very  small. 

In  this  last,  Illinois  was  a  little  more  fortunate  than  most  of  her 
neighbors  and  on  the  whole  her  farm  yields  were  good,  but  prices  fell 
to  unusually  low  levels  because  bumper  crops  had  been  harvested  in 
Europe.  The  agricultural  situation  again  affected  the  railways, 
the  warehouses,  and  milling  interests,  and  from  there  once  more  sent 
cause  for  further  depression  around  the  vicious  circle. 

Foreign  trade,  even  for  such  commodities  as  America  had  in  ex- 

287 


288  FINANCING  AN  EMPIRE 

cess,  was  restricted  by  a  doubt  which  existed  botli  at  home  and  abroad 
as  to  the  ability  of  the  government  to  maintain  its  gold  standard.  In 
addition,  tariff  reforms  were  impending,  and  manufacturers  were 
menaced  by  a  proposed  reduction  of  import  duties  and  a  resulting 
shrinking  demand  which  would  curtail  production  or  close  factories. 
Production  of  mines  fell  off  because  of  the  lessened  construction  tak- 
ing place.  This  still  further  reduced  traffic  on  the  already  hard- 
pressed  railroads  and  threw  large  numbers  of  people  out  of  work, 
lowered  the  wages  of  others,  and  again  the  vicious  circle  went  round. 
Unemployed  crowded  the  streets  demanding  work  and  food  and  broke 
into  more  riots. 

This  unhappy  situation,  which  prevailed  everywhere,  doubtless  was 
due  chiefly  to  the  agitation  then  abroad  for  the  abandonment  of  the 
gold  standard.  Back  in  1878  the  Bland- AHison  Silver  Purchase  Act 
had  been  passed.  In  1889  the  Secretary  of  the  Treasury  described 
its  operation  as  follows: 

"The  continued  coinage  of  the  silver  dollar,  at  a  constantly  increas- 
ing monthly  quota,  is  a  disturbing  element  in  the  otherwise  excellent 
financial  condition  of  the  country,  and  a  positive  hindrance  to  any 
international  agreement  looking  to  the  free  coinage  of  both  metals 
at  a  fixed  ratio. 

"Mandatory  purchases  by  the  government  of  stated  quantities  of 
silver,  and  mandatory  coinage  of  the  same  into  full  legal-tender  dol- 
lars, are  an  unprecedented  anomaly,  and  have  proved  futile,  not  only 
in  restoring  the  value  of  silver,  but  even  in  staying  the  downward  j>rice 
of  that  metal.     *     *     * 

"No  proper  effort  has  been  spared  by  the  Treasury  Department  to 
put  into  circulation  the  dollars  coined  under  this  law.  They  have 
been  shipped,  upon  demand,  from  the  mints  and  sub-treasuries,  free 
of  charge,  to  the  nearest  and  most  distant  localities  in  the  United 
States,  only  to  find  their  way  back  into  Treasury  vaults  in  payment 
of  government  dues  and  taxes.  Surely  the  stock  of  these  dollars 
which  can  perform  any  useful  function  as  a  circulating  medium  must 
soon  be  reached,  if  it  has  not  been  already,  and  the  further  coinage 
of  them  will  then  become  a  waste  of  public  money  and  a  burden  upon 
the  Treasury." 

In  1890  this  law  was  finally  repealed  and  the  Sherman  Silver 
Purchase  Law  enacted  in  its  stead.  This  required  that  the  Secretary 
of  the  Treasury  purchase  four  and  one-half  million  ounces  of  silver 
bullion  each  month  against  which  and  in  payment  whereof  Treasury 


i>  — 


MONO^'""-      ' 


FKEE  SILVEK  CAKTOON  FROM  "COIN'S  FINANCIAL  SCHOOL' 


HISTORY  OF  BANKING  IN  ILLINOIS  291 

notes  of  full  legal  tender  were  to  be  issued.  This  bill  existed  only 
three  years.  President  Cleveland  exerted  every  effort  from  the  mo- 
ment he  entered  the  White  House  in  1893  to  have  it  repealed.  Dur- 
ing its  existence  the  money  supply  of  the  country  increased  consid- 
erably, as  was  evidenced  from  the  Treasury  report  of  1893,  which 
reads  in  part  as  follows: 

"One  of  the  principal  difficulties  encountered  by  the  Treasury  De- 
partment results  from  the  indisposition  of  the  public  to  retain  stand- 
ard silver  dollars  and  silver  certificates  in  circulation.  It  requires 
constant  effort  on  the  part  of  the  Treasury  officials  to  prevent  the  cer- 
tificates especially  from  accumulating  in  the  sub-treasuries  to  the  ex- 
clusion of  legal-tender  currency." 

Politicians  now  seized  upon  this  silver  situation  and  soon  succeeded 
in  creating  a  popular  belief  that  it  lay  at  the  bottom  of  all  the  diffi- 
culties of  the  time — and  in  truth  it  did,  but  rather  because  of  the  un- 
settled state  into  which  such  controversy  had  thrown  the  country 
than  for  any  other  reason.  Also  there  were  those — among  whom  were 
a  number  of  prominent  bankers  of  Chicago — who  insisted  that  the 
remedy  to  existing  troubles  lay,  if  not  in  the  absolute  destruction  of 
government  note  issues,  then  at  least  in  their  temporary  withdrawal 
or  suppression  so  that  the  Treasury  might  for  a  time  at  least,  be  free 
from  the  troubles  attendant  on  the  redemption  of  such  paper.  This  was 
also  the  opinion  of  President  Cleveland.  He  maintained  that  the 
constant  endeavor  to  uphold  the  redeemability  of  Treasury  notes 
was  resulting  in  a  large  increase  in  the  federal  indebtedness  and  that 
it  would  be  far  better  to  purchase  and  cancel  the  notes  outright  with 
the  same  outlay  of  money.  Thus  it  would  be  possible  before  long  to 
destroy  all  the  notes  of  1890  and  a  portion  of  the  greenbacks  then  in 
circulation. 

Of  all  the  things  that  occurred  to  add  to  the  general  distress  in 
the  year  1894,  one  in  particular  was  to  mark  the  state  of  Illinois  as 
the  center  of  one  of  the  greatest  terrors  of  all,  and  one  which  had  as 
large  a  bearing  as  any  upon  the  general  commercial  and  financial  un- 
rest of  the  country  as  a  whole.  This  event  was  the  uncontrolled  riots 
which  raged  in  and  about  Chicago  in  the  early  days  of  July.  The 
lawlessness  of  these  uprisings  held  the  transportation  interests  of  the 
whole  nation  in  subjugation,  stopped  commerce,  defied  authority  of 
every  kind,  and  for  a  time  seemed  to  menace  the  very  foundations  of 
society  and  government. 

The  strike  was  first  inaugurated  by  the  American  Railway  Union 


292  FINANCING  AN  EMPIRE 

under  the  leadership  of  Eugene  V.  Debs  in  the  latter  part  of  June  but 
did  not  develop  to  any  serious  extent  until  July.  Then,  although  Chi- 
cago was  the  center  of  the  disturbance,  the  trouble  extended  actively 
all  the  way  to  the  Pacific  coast,  down  to  Louisville  and  Cincinnati, 
and  also  embraced  a  number  of  railroad  lines  operating  east  of  Chi- 
cago. In  fact,  the  rioters  had  possession  of  all  railroads  centering  in 
Chicago,  and  by  July  1  they  boasted  that  they  had  tied  up  no  less 
than  thirty-five  complete  lines.  Xot  a  train  was  allowed  to  be  moved 
and  for  days  not  a  bushel  of  grain  was  brought  into  Chicago.  Freight 
shipments  both  into  and  out  of  the  city  were  practically  stopped  and 
even  the  mails  were  interfered  with  in  defiance  of  federal  law. 

Were  any  attemj^t  made  to  run  a  train,  the  rioters  would  pull  off' 
the  men  handling  it  and  treat  them  outrageously.  Then  they  would 
tear  up  the  tracks,  overturn  the  train,  and  before  long  they  even  went 
so  far  as  to  burn  hundreds  of  cars  in  the  stock  yards  and  other  dis- 
tricts. Property  in  general  was  destroyed  until  all  operations  had  been 
stopped  on  half  the  mileage  in  the  country,  and  the  rioters  were  gain- 
ing such  success  and  instilling  such  terror  that  it  looked  as  though 
they  might  soon  make  good  their  intention  to  tie  up  the  other  half 
as  well.  They  even  went  outside  their  own  union  and  attempted  to 
call  out  the  employees  in  other  trades. 

Within  a  few  days  such  a  condition  of  general  anarchy  had  de- 
veloped that  the  courts  were  again  appealed  to,  but  the  rioters  would 
pay  no  attention  to  their  injunctions.  Marshals  and  deputies  could 
not  subdue  the  lawless  force,  and  affairs  appeared  so  serious  that  great 
excitement  prevailed  even  in  Europe,  where  it  was  reported  that  not 
riot,  but  civil  Avar,  was  in  progress  in  America. 

On  July  8  the  President  of  the  United  States  issued  a  proclama- 
tion declaring  that  it  had  become  impracticable  to  enforce  the  judicial 
proceedings  of  the  United  States  by  ordinary  course  in  Illinois  and 
especially  in  Chicago,  and  that  thereafter  federal  troops  would  be 
garrisoned  in  every  railroad  station  in  the  city.  In  addition,  both  the 
Northern  Pacific  and  the  Union  Pacific  railroads  were  put  under  mili- 
tary control,  and  as  a  result  the  riots  were  quelled  aud  the  trouble 
quickly  subsided  in  Chicago. 

Throughout  the  year  business  conditions  generally  continued  in 
a  bad  way,  but  after  the  first  month  of  189.5  a  marked  improvement 
set  in.  Up  to  that  time  the  nature  of  our  currency,  together  with  the 
controversies  about  it,  had  been  such  that  there  had  been  much  grave 
doubt  as  to  the  ability  of  the  government  to  redeem  it  in  gold.    At  the 


HISTORY  OF  BANKING  IN  ILLINOIS  ,       293 

opening  of  the  new  year  even  greater  gloom  prevailed  for  a  short  time 
as  enormous  amounts  of  gold  were  being  withdrawn  from  the  Treas- 
ury, both  for  exports  and  for  domestic  use.  By  the  end  of  January 
the  Treasury  faced  the  jjossibility  of  suspension  of  gold  payments  un- 
less speedy  relief  was  somehow  obtained,  and  on  January  30,  the  As- 
sistant Treasurer  at  New  York  reported  to  Washington  that  he 
thought  the  sub-treasury  stock  of  gold  would  not  hold  out  another 
three  days.  Such  might  have  been  the  case  had  it  not  been  for  the 
fact  that  on  that  very  day  the  government  entered  into  negotiations 
leading  to  the  Morgan-Belmont  Syndicate  agreement.  This  was  an 
agreement  on  the  part  of  the  government  with  a  number  of  financiers 
and  bankers  whereby  it  was  stipulated  that  four  per  cent  bonds,  ma- 
turing in  thirty  years  and  amounting  in  all  to  about  sixty-two  mil- 
lion dollars,  should  be  exchanged  for  gold,  receivable  by  weight, 
amounting  to  a  little  more  than  sixty-five  million  dollars.  This  gold 
was  to  be  delivered  in  installments  at  such  intervals  that  the  entire 
amount  would  be  paid  within  about  six  months,  and  at  least  one-half 
of  the  total  was  to  be  furnished  from  abroad.  Furthermore,  the  Syndi- 
cate agreed  that  during  the  continuance  of  the  contract  it  would  exert 
every  means  in  its  power  to  protect  the  government  against  gold  with- 
drawals. 

Through  this  sale  of  bonds  and  the  consequent  large  importations 
of  gold,  the  Syndicate  made  it  possible  for  the  Treasury  to  establish 
definitely  the  ability  of  the  country  to  maintain  gold  payments.  This 
new  plan  had  a  decided  advantage  over  previous  bond-selling  schemes, 
few  of  which  had  worked  with  any  marked  success,  in  that  the  gold 
it  paid  into  the  Treasury  actually  stayed  there.  Even  after  the  Syndi- 
cate had  completed  its  contracts  and  agreements  with  the  government 
and  paid  into  the  Treasury  all  the  gold  promised,  it  still  functioned  in 
periods  of  heavy  withdrawals  and  returned  large  quantities  of  the 
precious  metal  upon  which  the  confidence  of  the  nation  depended. 

In  addition  to  the  good  effect  the  operations  of  this  Syndicate  had 
upon  the  business  of  the  country,  the  year  1895  saw  excellent  crops 
which  added  their  share  to  improved  railroad  earnings  and  likewise 
contributed  to  the  upbuilding  of  general  business  to  such  an  extent 
that  in  the  iron  and  steel  industries  conditions  reached  the  proportions 
of  a  boom  before  the  year  had  ended. 

Because  of  the  operations  of  the  Syndicate,  it  was  July  before  any 
exports  of  gold  were  made  to  Europe.  Meantime  confidence  had  de- 
veloped abroad  as  well  as  at  home.     Large  quantities  of  American 

Vol.  I— 10 


294  FINANCING  AN  EMPIRE 

bonds  had  been  absorbed  in  Europe  and  foreign  exchange  rates  de- 
clined. It  seemed  that  an  end  to  the  long  period  of  hard  times  must 
be  coming  at  last.  Throughout  the  country,  month  by  month,  there 
was  displayed  an.  ever  increasing  confidence  and  with  it  a  more  and 
more  gratifying  volume  of  business.  This  state  of  affairs  continued 
through  the  month  of  November. 

But  with  the  coming  of  December  there  arose  a  controversy  with 
Great  Britain  over  the  boundaries  between  Venezuela  and  British 
Guiana.  The  belief  that  this  dispute  might  involve  the  United  States 
in  war  with  Great  Britain  created  a  panic  on  the  New  York  Stock 
Exchange  and  caused  several  failures  in  the  east.  Before  the  end  of 
the  month  matters  looked  a  little  brighter,  but  the  new  year  was  still 
to  be  ushered  in  under  a  war  cloud. 

The  year  1896  opened  with  the  Venezuelan  difficulty  hanging  over 
it  and  ended  with  the  Senate  suggesting  action  with  regard  to  Cuba 
which,  if  carried  out,  would  result  in  war  with  Spain.  These  two  sit- 
uations would  have  been  enough  to  keep  the  finances  of  America  in 
a  state  of  turmoil  throughout  most  of  the  year,  but  matters  of  so  much 
greater  difficulty  arose  as  to  throw  these  two  impending  wars  into  the 
background.  That  no  actual  panic  occurred  in  1896  was  due  to  the 
quick  and  efficient  action  of  financial  and  banking  institutions  on  sev- 
eral occasions. 

Political  conventions  throughout  the  country  were  showing  a  de- 
cided feeling  in  favor  of  currency  reforms  which  were  bound  to  make 
an  already  bad  situation  gravely  worse.  At  the  State  Democratic 
Convention  of  Illinois,  held  in  June,  it  was  made  plain  that  the  silver 
advocates  dominated  that  body.  The  situation  did  not  become  highly 
critical,  however,  until  early  in  July  when,  at  the  National  Democratic 
Convention  held  in  Chicago  (July  7  to  11),  a  definite  stand  was  taken 
for  the  free  and  unlimited  coinage  of  silver  by  the  large  vote  of  628 
against  301.  In  addition,  this  convention  favored  a  number  of  other 
dangerous  doctrines,  among  which  was  a  plank,  injected  by  Governor 
John  P.  Altgeld  of  Illinois,  who  had  come  into  national  prominence 
through  the  pardoning  of  prisoners  who  had  engaged  in  the  Haymar- 
ket  riots  staged  by  anarchists.  Thereby  the  Supreme  Court  of  the 
United  States  was  criticized  and  the  use  of  the  injunction  and  con- 
tempt procedure,  which  had  been  utilized  during  the  strike  of  the 
American  Railway  Union,  denounced.  This  plank  which  definitely 
held  out  against  the  "arbitrary  interference  by  federal  authorities  in 
local  affairs  as  a  violation  of  the  Constitution  of  the  United  States 


HISTORY  OF  BANKING  IN  ILLINOIS  .      295 

and  a  crime  against  free  institutions,"  caused  so  much  agitation  that 
the  financial  press  and  other  mediums  published  long  articles  hark- 
ing back  to  the  riots  of  two  years  before  which  could  not  have  been 
stopped  by  any  force  less  than  that  of  the  federal  government  and 
wanted  to  know  what  the  country  was  coming  to  when  one  of  its 
greatest  political  parties  would  stand  for  such  disastrous  demonstra- 
tions. 

This  declaration,  however,  soon  disappeared  from  the  stage  of 
public  interest  to  make  way  for  the  more  heated  discussion  of  the  sil- 
ver question  which  now,  as  in  the  past,  provided  a  particularly  fertile 
field  for  politicians  in  general.  As  early  as  1892  they  had  seized 
upon  it  in  the  west  and  soon  created  a  popular  belief  that  it  lay  at  the 
bottom  of  all  the  difficulties  of  the  time.  As  yet  gold  mining  was  not 
so  prominent  a  factor  to  the  country  in  general  and  to  the  west  in 
particular  as  was  silver.  Gold  was  being  found  to  a  great  extent  in 
California  and  the  Cripple  Creek  district  of  Colorado  had  begun  to 
be  opened  up,  but  beyond  that  the  gold  mines  of  the  United  States 
did  not  amount  to  a  great  deal.  Consequently,  the  west  was  strongly 
for  the  free  and  unlimited  coinage  of  silver  which,  it  believed,  would 
give  an  ample  outlet  for  the  products  of  western  mines.  At  first  this 
western  sentiment  was  not  confined  to  any  one  political  party.  It 
was  Senator  William  M.  Stewart  of  Xevada,  a  strong  Republican, 
who  during  the  early  attempts  of  President  Cleveland  to  repeal  the 
Silver  Purchase  Act  and  to  discontinue  the  coinage  of  silver  dollars, 
talked  for  so  many  hours  in  favor  of  silver  coinage  as  to  make  one 
of  the  most  noteworthy  filibusters  in  the  history  of  the  country.  For 
some  years  western  newspapers  kept  up  a  campaign  advocating  the 
free  and  unlimited  coinage  of  silver  and  it  Mas  probably  largely  as  a 
result  of  this  that  Senator  Stewart  made  his  famous  filibuster  talk 
in  Congress. 

As  the  presidential  campaign  of  1896  approached,  this  element 
attempted  to  get  control  of  both  of  the  important  national  parties. 
Since  they  had  failed  at  the  Republican  Convention,  they  attempted 
to  set  up  Senator  Henry  31.  Teller  of  Colorado,  a  strong  Republican, 
as  the  Democratic  presidential  nominee  of  the  Chicago  convention. 
This  attempt  was  pushed  so  vigorously  by  a  group  of  senators  from 
the  west  that  newspaper  men  dubbed  it  the  "Silver  Senatorial  Syn- 
dicate." 

At  the  Republican  Convention  held  in  St.  Louis  in  June,  Herman 
H.  Kohlsaat  of  Illinois,  who  was  then  editor  of  the  Times-Herald  of 


296  FINANCING  AN  EMPIRE 

Chicago  and  an  ardent  advocate  of  the  gold  standard,  led  the  cam- 
paign for  gold  in  the  middle  west.  Mr.  Kohlsaat  was  a  close  friend 
of  William  McKinley  and,  with  the  cooperation  of  Marcus  A.  Hanna, 
the  sound  money  interests  were  able  to  control  the  Republican  Con- 
vention and  adopt  the  gold  standard — this  in  the  face  of  a  threatened 
bolt  of  delegates  from  a  number  of  the  western  states. 

At  the  Democratic  Convention  held  the  first  week  in  July  fol- 
lowing at  the  Coliseum  in  Chicago,  the  gold  element  was  in  control 
of  the  national  committee,  as  had  been  the  case  with  the  Republican 
Convention,  but  a  very  large  majority  of  the  delegates  were  for  the 
free  and  unlimited  coinage  of  silver  at  a  ratio  of  sixteen  to  one.  Sen- 
ator David  B.  Hill  of  New  York  was  the  spokesman  for  the  gold 
standard  and,  while  the  speakers  in  favor  of  a  silver  platform  had 
numerous  advocates,  the  leadership  on  that  side  quickly  centered  in 
William  Jennings  Bryan,  Congressman  from  Nebraska.  Bryan  was 
then  only  thirty-six  years  old  and  had  been  previously  unknown  in 
national  politics.  Apparently  he  had  not  even  been  thought  of  seri- 
ously for  the  nomination,  but  when  he  delivered  a  speech  of  impas- 
sioned eloquence  upholding  the  cause  of  free  coinage  of  silver  he 
quickly  captured  the  Convention.  In  his  address  Mr.  Bryan  said  in 
part : 

"If  they  ask  us  why  it  is  that  we  say  more  on  the  money  ques- 
tion than  we  say  upon  the  tariff  question,  I  reply  that,  if  protection 
has  slain  its  thousands,  the  gold  standard  has  slain  its  tens  of  thou- 
sands. If  they  ask  us  why  wre  do  not  embody  in  our  platform  all  the 
things  that  we  believe  in,  we  reply  that  when  we  have  restored  the 
money  of  the  Constitution  all  other  necessary  reforms  will  be  pos- 
sible; but  that  until  this  is  done  there  is  no  other  reform  that  can  be 
accomplished.  *  *  *  If  they  say  bi-metallism  is  good,  but  that 
we  cannot  have  it  until  other  nations  help  us,  we  reply  that,  instead 
of  having  a  gold  standard  because  England  has,  we  will  restore  bi- 
metallism, and  then  let  England  have  bi-metallism  because  the  United 
States  has  it.  If  they  dare  come  out  in  the  open  field  and  defend  the 
gold  standard  as  a  good  thing,  we  will  fight  them  to  the  uttermost. 
Having  behind  us  the  producing  masses  of  this  nation  and  the  world, 
supported  by  the  commercial  interests,  the  laboring  interests,  and 
the  toilers  everywhere,  we  will  answer  their  demand  for  a  gold  stand- 
ard by  saying  to  them :  You  shall  not  press  down  upon  the  brow  of 
labor  this  crown  of  thorns,  you  shall  not  crucify  mankind  uj^on  a  cross 
of  gold." 


HISTORY  OF  BANKING  IX  ILLINOIS  297 

This  speech  was  followed  by  one  of  the  greatest  demonstrations 
in  political  history — the  march  of  the  standards — during  which  the 
Convention  was  thrown  into  pandemonium.  State  delegates  carried 
their  standards  around  the  hall  in  an  uproar  that  lasted  for  almost 
an  hour.  It  became  evident  that  Bryan,  who  had  surprisingly  cap- 
tured the  Convention,  had  completely  forced  out  the  silver  senatorial 
group  which  was  urging  the  nomination  of  Republican  Senator  Henry 
M.  Teller  of  Colorado  and  a  large  number  of  other  candidates  who 
were  "favorite  sons"  of  various  states.  But,  after  the  "Cross  of  Gold" 
speech,  sentiment  crystallized  for  Bryan  over  night  and  he  was  nom- 
inated with  a  wide  margin  over  the  two-thirds  vote  of  delegates  re- 
quired by  the  rules  of  the  Convention. 

The  very  week  after  this  Convention,  the  Stock  Exchange  showed 
a  marked  depression  with  a  heavy  decline  in  prices.  Gold  was  again 
withdrawn  from  the  Federal  Treasurv  and  the  bankers  of  New  York, 
Boston,  Philadelphia  and  Chicago  went  to  its  rescue  with  approxi- 
mately twenty-five  million  dollars. 

While  the  Democrats  had  so  definitely  adopted  a  platform  for 
unsound  money,  the  Republicans  came  out  for  a  strictly  gold  stand- 
ard on  the  ground  that  there  existed  no  international  standard  ratio 
for  the  coinage  of  silver.  Thus  the  campaign  was  fought  almost  en- 
tirely on  a  currency  basis. 

Each  party  had  many  defections.  The  Republicans  lost  from 
those  states  in  which  silver  was  mined  and  the  Democrats  from  prac- 
tically all  sections  excepting  the  south.  However,  the  latter  gained 
much  from  an  alliance  with  the  Populists  who,  at  their  Convention, 
nominated  a  candidate  of  their  own  for  Vice-President,  but  joined 
the  Democrats  in  uniting  on  Bryan  for  the  Presidency.  Similarly, 
the  silver  Republicans  formed  a  party  and  after  a  fortnight  or  more 
of  negotiations  at  St.  Louis,  elected  to  support  the  Democratic  pres- 
idential candidate. 

All  these  supporters  of  free  silver  preached  that  the  financial  dif- 
ficulties, which  had  existed  since  1893,  were  due  to  an  inadequate 
money  medium.  They  said  that  industry  was  depressed  because  of 
the  discrimination  of  the  mint  against  silver  and  that  this  defect  alone 
was  fundamental.  This  grouj)  refused  to  recognize  the  fact  that  the 
forces  controlling  the  flow  of  specie  were  universal,  but  instead  re- 
garded the  interests  of  the  United  States  and  those  of  other  countries 
as  radically  different.  The  long  continued  depression  had  led  many 
people  to  believe  that  some  radical  change  was  necessary:  this  one 


298  FINANCING  AN  EMPIRE 

was  being-  talked  on  all  sides,  so  they  accepted  it.  In  the  west  the 
price  of  wheat  and  corn  had  fallen  to  so  low  a  point  that  it  could  be 
produced  profitably  only  under  the  most  advantageous  natural  con- 
ditions, and  consequently  great  agricultural  interests,  irrespective  of 
party,  also  were  being  strongly  appealed  to  on  the  theory  that  their 
property  interests  were  dependent  upon  the  restoration  of  silver, 
which  was  expected  to  boost  prices  by  making  money  more  plentiful. 

The  silver  advocates  had  been  issuing  a  vast  amount  of  literature 
during  1893,  1894,  and  1895,  among  which  was  a  pamphlet  called 
"Coin's  Financial  School."  This  described  classes  supposed  to  have 
been  held  at  the  Art  Institute  in  Chicago  and  to  have  been  attended 
by  the  most  prominent  bankers,  business  men,  economists,  and  advo- 
cates of  the  gold  standard,  all  of  whom  were  depicted  as  staggered 
by  the  simple  conversational  instruction  of  a  very  youthful  teacher. 
These  lectures  were  profusely  illustrated  by  cartoons  supposed  to  have 
been  sketched  on  the  blackboard  by  "Coin,"  and  they  gave  great 
prominence  to  the  "fallacies"  in  the  contentions  of  such  men  as  Lyman 
J.  Gage,  president  of  the  First  National  Bank;  Victor  F.  Lawson 
of  the  Chicago  Daily  News,  Joseph  Medill,  publisher  of  the  Chicago 
Tribune;  John  R.  Walsh,  president  of  the  Chicago  National  Bank; 
Professor  J.  Laurence  Laughlin  of  the  University  of  Chicago,  and 
many  others  of  equal  prominence,  and  pretended  to  have  convinced  all 
of  these  of  the  soundness  of  silver  money  theories.  Long  before  the 
prominent  citizens  so  attacked  had  become  aware  of  the  use  to  which 
their  names  were  being  put  for  a  cause  to  which  they  were  opposed, 
thousands  of  these  pamphlets  had  been  distributed  throughout  the 
country. 

Seven  main  contentions  of  the  silver  men  which  were  prominently 
advertised  in  this  way  were : 

1.  Demonetization  of  silver  had  deprived  the  people  of  one-half 
of  the  primary  money  made  available  by  nature. 

2.  This  great  contraction  of  money,  increased  by  the  falling-off  in 
the  production  of  gold,  had  caused  the  steady  downward  trend  in 
prices  since  1873. 

3.  The  consequent  enhancement  of  the  purchasing  power  of  gold 
enormously  increased  the  obligations  of  the  debtors  having  deferred 
payments  to  make. 

4.  These  unsatisfactory  conditions  would  be  aggravated  by  con- 
centrating upon  one  metal  only  the  measuring  of  values  and  debt-pay- 


HISTORY  OF  BANKING  IN  ILLINOIS  299 

ing  power;  while  the  alternative  existed  of  paying  in  either  metal,  the 
danger  of  inordinate  enhancement  of  one  was  neutralized. 

5.  The  farmer  was  compelled  under  the  gold  standard  to  com- 
pete with  producers  in  other  lands  (India,  etc.)  where  labor  was  cheap 
and  the  silver  basis  prevailed. 

6.  The  United  States  should  take  the  lead  by  opening  the  mints 
to  free  and  unlimited  coinage  of  silver,  which  would  surely  bring  sil- 
ver to  parity  and  compel  other  nations  to  do  likewise. 

7.  The  United  States  required  a  larger  volume  of  money,  and  free 
coinage  was  the  proper  way  of  increasing  it,  especially  as  the  country 
produced  so  much  silver. 

The  gold  advocates,  on  the  other  hand,  in  counter  literary  attacks 
contended  that: 

1.  The  volume  of  money  had  actually  increased  in  greater  ratio 
than  population,  and  the  growing  use  of  credit  instruments  had  added 
to  the  media  of  exchange. 

2.  The  fall  in  prices  was  due  chiefly,  and  probably  wholly,  to  im- 
proved methods  of  production,  and  had  no  relation  to  the  demonetiza- 
tion. 

3.  Producers  were  also  consumers  and  hence  had  to  pay  less  for 
commodities,  so  that  relatively  they  were  not  injured  by  the  fall  in 
prices. 

4.  The  theory  of  having  two  standards  was  a  delusion.  Only 
one  thing  could  actually  be  a  standard.  That  in  fact  gold  was  the 
only  standard,  silver  being  measured  by  it. 

5.  Free  coinage  meant  depreciated  money  than  which  no  device 
was  more  potent  in  cheating  both  the  producer  and  the  consumer. 
It  would  precipitate  the  country  upon  a  silver  basis  with  gold  at  a 
fluctuating  premium  as  in  Mexico,  not  only  contracting  the  volume 
of  money,  but  causing  untold  injury  to  all  interests. 

6.  Europe  would  be  only  too  glad  to  have  the  United  States  take 
up  the  silver  burden  alone,  enhancing  the  value  of  Europe's  stock  of 
silver,  but  would  not  follow  the  example. 

7.  The  volume  of  money  was  then  greater  than  the  needs  of  the 
country  and  when  greater  needs  manifested  themselves  the  supply 
would  come  from  abroad  in  the  shape  of  gold  and  from  the  product 
of  our  own  mines  at  home,  the  output  of  which  was  now  rapidly  in- 
creasing. 

The  extent  to  which  the  economic  fallacies  of  Bryan  and  his  fol- 


300  FINANCING  AN  EMPIRE 

lowers  were  accepted  was  humorously  related  by  an  Illinois  banker, 
who  shared  the  anxiety  of  all  political  parties  of  those  days.    He  said : 

"Sentiment  coupled  with  the  demand  for  the  remonetization  of 
silver  as  a  legal  tender  for  debts  grew  into  a  loud-voiced  protest  in 
which  William  J.  Bryan's  voice  became  the  most  conspicuous.  At 
the  convention  of  the  Democratic  party  held  in  July,  1896,  the  fol- 
lowing resolution  was  adopted: 

'We  demand  of  the  present  Congress  the  immediate  return  to 
the  money  of  the  Constitution  as  established  by  our  fathers,  by  restor- 
ing the  free  and  unlimited  coinage  of  both  gold  and  silver  at  the  pres- 
ent ratio  of  16  to  1,  the  coins  of  both  metals  to  be  equally  full  legal 
tender  for  all  debts,  public  and  private,  as  before  the  fraudulent 
demonetization  of  silver  in  1873. 

'We  also  condemn  the  increase  of  the  national  debt  in  time  of 
peace,  and  the  use  of  interest  bearing  bonds  at  any  time.' 

"Now,  while  the  finances  of  the  country  comprised  the  political 
issues  of  the  time,  yet,  as  I  recollect,  the  country  did  not  awaken  to 
the  real  dangers  that  the  silver  party  was  creating  until  the  above 
platform 'was  constructed  by  the  advocating  of  a  full  legal  tender 
for  debts.  It  was  then  that  the  banks  and  the  business  world  awoke 
with  a  start  to  a  realization  of  what  they  were  facing. 

"There  was  a  plan  to  give  a  false  value  to  silver  by  compelling 
everybody  to  take  about  forty-eight  cents  worth  of  metal  at  a  par  of 
one  hundred  cents  in  payment  of  debts.  This  prospect  was  a  terrible 
awakening  to  the  banks  especially.  They  faced  certain  ruin  if  the 
silver  party  was  successful  in  November.  But  even  a  portion  of  the 
Democratic  party  realized  the  gathering  storm  and  rallied  to  the 
rescue,  and  many  gold  Democrats  voted  with  the  Republicans,  al- 
though the  organization  of  the  Democratic  Gold  Party  with  John  M. 
Palmer  of  Illinois  as  their  candidate  had  been  established. 

"The  panic  of  1896  had  in  it  more  solid  reasons  for  alarm  than 
any  of  its  predecessors.  What  bank  could  stand  up  under  a  discount 
of  fifty-two  per  cent  from  par  on  its  bills  receivable?  Thus  we  were 
menaced  with  the  silver  party,  led  by  the  magical  voice  of  its  shepherd 
orator,  William  J.  Bryan  with  his  crown  of  thorns  and  cross  of  gold, 
every  unscrupulous  debtor  was  fighting  for  the  right  to  cut  his  obliga- 
tion in  half,  regardless  of  its  effect  on  the  creditor  who  had  trusted 
him. 

"No  wonder  we  were  frightened.  Here  we  were  confronted  by 
a  perfect  deluge  of  silver  money,  at  a  legal  ratio  of  sixteen  of  silver 


FREE  SILVER  CARTOON  USED  DURING  THE  16  TO  ONE  CAMPAIGN 


SOUND  MONEY  CARTOON  USED  DURING  THE  FREE  SILVER  CAMPAIGN 


HISTORY  OF  BANKING  IN  ILLINOIS  r        303 

to  one  of  gold  to  be  disgorged  from  the  United  States  mint  upon 
the  doomed  heads  of  the  banks  of  our  nation,  and  the  shibboleth  of 
'Sixteen  to  One'  went  through  the  hosts  of  radicalism  and  revolu- 
tion like  a  war  cry. 

"This  war  cry  of  'Sixteen  to  One'  was  much  misunderstood  by  a 
considerable  portion  of  the  party.  Some  thought  it  meant  that  six- 
teen cents  in  silver  Mould  pay  one  dollar  of  debt,  others  that  silver 
was  to  be  taken  at  a  ratio  of  sixteen  silver  dollars  to  one  of  gold.  Both 
conclusions  were  wrong  of  course  and  both  equally  absurd,  but  the 
misconception  resulted  in  some  funny  consequences  and  here  is  one 
as  related  by  a  Congressman  from  Michigan: 

"He  and  three  friends  enroute  to  the  western  coast  stepped  off 
the  train  at  Reno,  Nevada,  and  while  the  train  was  going  through  the 
usual  divisional  changes,  they  went  to  a  nearby  saloon.  When  the 
drinks  had  gone  round,  the  gentleman  treater  discovered  that  he  had 
left  his  money  in  his  grip  on  the  train  and  that  only  a  souvenir  gold 
dollar  remained.  But  this  was  enough  for  the  purpose  and  he  reluc- 
tantly slapped  his  pocket  piece  on  the  top  of  the  bar.  The  bill  was 
ninety  cents.  The  barkeeper  stared  at  the  coin  as  if  it  were  an  ancient 
curio. 

'Well,  I'll  be  darned,'  said  he,  'I  ain't  seen  one  of  them  things 
since  I  came  to  this  silver-mining  country.  That's  the  thing  that's 
shutting  up  our  mines  in  these  parts.  Xow  we're  going  to  knock  it 
out  when  Billy  Bryan  wins  out,  but  in  the  meantime  we  got  to  make 
good  on  our  politics.  We're  shoutin'  "Sixteen  to  One"  and  we  got 
to  make  it  good,  so  here  goes,'  and  he  proceeded  to  pass  out  sixteen 
silver  dollars  and  ten  cents  in  change. 

"Just  then  the  conductor  poked  in  his  head  to  call  'All  aboard' 
and  the  tourists  regained  their  train,  full  of  silver  and  laughter  at  the 
expensive  ignorance  of  the  barkeeping  politician." 

Since  there  was  a  large  number  of  prominent  Democrats  who 
preferred  not  to  go  over  to  the  Republican  party  and  who  were  yet 
unable  to  support  Bryan  and  his  platform  demanding  "the  free  and 
unlimited  coinage  of  both  gold  and  silver  and  the  present  legal  ratio 
of  16  to  1  without  waiting  for  the  aid  or  consent  of  any  other  nations," 
these  met  on  August  7  and.  completely  repudiating  the  platform  of 
the  Chicago  Convention,  called  a  convention  of  their  own  which  met 
in  Indianapolis  on  September  2.  This  group,  which  called  itself  the 
"Honest  Money  Democrats,"  nominated  Senator  John  M.  Palmer  of 
Illinois  and  General  Edward  S.  Bragg  of  Wisconsin,  who  had  made 


304  FINANCING  AN  EMPIRE 

a  great  name  for  himself  during  the  Civil  War,  to  represent  them 
as  presidential  candidates.  Only  one  vote  was  taken  and  by  it 
Senator  Palmer  was  selected  for  the  honor.  Simon  B.  Buckner  of 
Kentucky  was  then  nominated  by  acclamation  as  the  candidate  for 
Vice-President.  Chicago  was  prominently  represented  at  this  con- 
vention and  likewise  some  of  the  best  known  business  men  and  states- 
men of  other  sections  of  the  country  were  present. 

After  that  the  whole  campaign  was  fought  most  bitterly.  In  its 
early  stages  the  silver  sentiment  seemed  to  sweep  the  country  from 
Ohio  throughout  the  west.  The  south,  however,  which  was  over- 
whelmingly Democratic,  was  more  lukewarm  on  the  silver  platform 
than  any  other  section  of  the  country,  except  the  east.  Nevertheless, 
the  south  continued  to  support  the  silver  candidates. 

Early  in  September  a  change  in  sentiment  began  to  manifest 
itself,  but  this  did  not  occur  until  the  country  had  been  flooded  with 
educational  literature  pointing  out  the  fallacies  of  the  silver  argu- 
ments. It  is  estimated  that  some  eighty  million  pieces  of  such  litera- 
ture were  circulated  by  the  various  sound  money  interests  and  this 
contributed  more  to  the  adoption  of  the  gold  standard  than  any  other 
means. 

Doubtless  the  greatest  service  rendered  the  country  by  any  group 
came  from  an  organization  known  as  the  National  Sound  Money 
League.  Nationally  known  men  gave  their  time  and  efforts  to  this 
cause  in  which  they  were  most  careful  to  keep  all  arguments  from 
taking  on  a  political  aspect.  Among  the  more  prominent  Democrats 
from  Illinois  who,  upon  repudiating  the  action  of  their  party,  identi- 
fied themselves  with  this  non-partisan  movement  for  sound  money, 
were  Franklin  McVeagh,  later  to  become  Secretary  of  the  Treasury. 
Ex-Mayor  John  P.  Hopkins  of  Chicago;  Roger  C.  Sullivan,  later  to 
be  Democratic  leader  in  Illinois;  Senator  John  M.  Palmer;  Benja- 
min S.  Cable  of  Rock  Island;  James  H.  Eckles,  Comptroller  of  the 
Currency;  John  R.  Walsh,  prominent  Chicago  banker  and  owner  of 
the  Chicago  Chronicle;  Washington  Hessing  of  Chicago,  Postmaster 
and  editor  of  the  Illinois  Staatszeitung;  Francis  S.  Peabody  of  the 
Peabody  Coal  Company  and  a  number  of  other  commercial  enter- 
prises in  Chicago;  Erskine  M.  Phelps,  Chicago,  Assistant  Treasurer 
of  the  United  States;  Cyrus  H.  McCormick;  and  many  other  promi- 
nent merchants  and  business  men  of  the  state. 

The  National  Sound  Money  League  published  a  paper  in  Chicago 
called  "Sound  Money,"  and  distributed  it  gratuitously  to  the  press  of 


HISTORY  OF  BANKING  IN  ILLINOIS  305 

the  country  and  to  public  speakers  and  other  mediums  for  influencing 
public  opinion.  In  this  way  data  and  arguments  in  the  interest  of 
right  thinking  and  right  voting  were  furnished.  These  men  and 
many  other  economists  contributed  to  the  columns  of  the  paper  and 
raised  large  sums  of  money  which  were  expended  in  a  purely  educa- 
tional campaign.  They  emphasized  the  dishonesty  of  the  free  coinage 
of  silver  at  the  ratio  of  16  to  1  when  the  commercial  ratio  was  more 
than  twice  as  great,  and  then"  logic  in  many  instances  was  reinforced 
by  history.  Since  this  organization  included  as  many  prominent 
Democrats  as  members  of  other  parties,  it  was  able  to  reach  and  com- 
mand the  attention  of  people  who  would  otherwise  have  rejected  the 
information  it  gave. 

Among  other  valuable  information  used  by  these  gold  advocates 
were  the  arguments  of  Senator  Sherman  of  Ohio  against  the  charge 
that  the  coinage  law  of  1873  had  been  passed  as  a  result  of  under- 
handed legislation.     The  Senator  said: 

"I  have  been  often  asked  not  only  in  this  Chamber  but  outside, 
how  it  comes  that  the  silver  dollar  was  dropped  from  among  the  coins 
of  the  country.  The  answer  is  that  in  1873  when  these  statutes  were 
so  carefully  revised,  the  silver  dollar  as  provided  in  the  then  existing 
law  was  worth  more  than  a  dollar  in  gold,  more  in  the  money  markets 
of  the  world.  There  was  no  use  then  in  issuing  the  dollar,  because  it 
would  go  into  the  melting  pot,  being  worth  more  than  the  gold  dollar. 
That  was  the  reason  why  the  silver  dollar  was  not  provided  for.  That 
was  before  the  movements  which  have  been  commented  upon  in 
Europe,  and  especially  in  Germany,  commenced  to  affect  the  price 
of  silver;  that  is,  they  required  sixteen  ounces  of  silver  to  be  equal  to 
one  ounce  of  gold.  The  result  was  that  a  dollar  in  silver  was  worth 
more  than  a  dollar  in  gold.  France  and  other  countries  had  said  that 
fifteen  and  a  half  ounces  of  silver  should  be  equal  to  an  ounce  of  gold 
and  that  made  a  difference  of  three  or  four  per  cent  as  between  their 
relation  and  ours,  which  difference  was  sufficient  to  induce  the  ex- 
portation of  silver  in  the  form  of  dollars,  or  bullion  to'  France  or  the 
countries  of  Europe  where  the  double  standard  prevailed.  The  result 
was  that  there  was  no  object  in  1873  in  providing  for  the  silver  dollar. 
If  it  had  been  issued  from  the  Mint  it  would  not  have  gone  into  circu- 
lation but  would  have  been  exported/' 

As  a  matter  of  fact,  even  in  making  the  concessions  already  exist- 
ing in  the  matter  of  silver  coinage,  the  United  States  government 
was  completely  reversing  the  policy  of  other  important  countries.    By 


306  FINANCING  AN  EMPIRE 

the  second  half  of  the  nineteenth  century  most  of  Europe  was  turning 
to  a  gold  standard.  As  early  as  1874  the  countries  of  the  Latin  Mone- 
tary Union  had  ceased  the  free  coinage  of  silver.  Germany  and  Hol- 
land had  taken  similar  action  and,  as  a  result,  large  quantities  of 
silver  were  on  the  market  available  for  sale.  Meantime,  the  mines  of 
the  world  were  increasing  their  output.  When  first  this  situation  pre- 
vailed, oriental  countries,  much  given  to  the  hoarding  of  precious 
metals,  absorbed  the  surplus  so  that  there  was  no  sharp  break  in 
prices.  But  after  the  Civil  War,  when  the  southern  states  resumed 
and  developed  their  cotton  shipments,  this  so  cut  down  the  supply 
of  that  commodity  formerly  absorbed  by  India  as  to  be  reflected  in 
the  lessened  absorption  of  silver  in  the  east.  Then  came  the  Bland- 
Allison  Act  after  which  the  Treasury  confined  its  silver  purchases 
to  two  million  dollars  a  month  and  silver  dollars  began  to  pile  up 
in  the  Treasury.  Finally,  even  though  that  was  repealed,  banks  were 
still  working  off  their  silver  on  the  Treasury  and  themselves  keeping 
the  gold. 

As  the  sound  money  campaign  progressed,  this  fact,  together  with 
the  heated  arguments  which  were  given  on  both  sides,  more  and  more 
developed  a  lack  of  confidence  in  the  Treasury's  ability  to  meet  its 
obligation  in  gold.  Consequently,  gold  was  hoarded  everywhere  until 
the  surplus,  which  had  been  $105,000,000  in  1890  and  had  been  en- 
tirely wiped  out  by  1893,  now  became  a  deficit  of  many  millions. 

On  August  12,  1896,  Bryan  himself  brought  about  a  slight  change 
for  the  better  when,  at  a  meeting  held  in  Madison  Square  Garden, 
Xew  York,  for  the  purpose  of  making  formal  announcement  of  his 
nomination,  he  delivered  a  speech  which  fell  so  far  short  of  his  Con- 
vention address  and  which  was  so  weak  in  its  arguments  that  before 
he  had  finished  the  audience  had  materially  dwindled.  This  made  it 
plain  that  he  could  not  carry  so  large  a  majority  as  had  at  first  been 
feared  and  promptly  the  Xew  York  Stock  market  began  to  rise, 
while  the  sound  money  men  were  given  excellent  opportunities  for 
refuting  Bryan's  unsound  arguments. 

Meantime,  in  Chicago,  the  convention  city  which  had  housed  the 
meeting  that  was  to  bring  months  of  great  anxiety  to  the  country, 
affairs  other  than  political  were  also  happening  to  make  a  bad  situa- 
tion worse.  Through  speculation  in  the  stocks  of  the  Diamond  Match 
Company  and  the  Xew  York  Biscuit  Company,  the  large  brokerage 
house  of  Moore  Brothers  failed  with  liabilities  estimated  at  fifteen 


HISTORY  OF  BANKING  IN  ILLINOIS  307 

millions.  As  a  result,  the  Chicago  Stock  Exchange  was  closed  from 
August  4  until  the  following,  November. 

In  spite  of  these  difficulties,  in  the  early  autumn  something  oc- 
curred which  greatly  enforced  the  arguments  of  the  sound  money 
advocates  and  turned  the  attention  of  the  west  and  middle  west,  in 
particular,  to  the  worth  of  the  monetary  principles  of  the  Republican 
party  and  its  candidate,  William  McKinley.  Wheat  in  Chicago  had 
touched  the  extraordinarily  low  price  of  fifty-three  cents  a  bushel. 
Then  came  news  of  the  partial  failure  of  the  crop  in  India.  This 
meant  that  India,  usually  an  exporting  country,  would  have  to  import 
wheat  for  her  own  use.  Immediately  the  price  in  Chicago  began  to 
rise  until  by  September  wheat  was  selling  for  seventy  cents,  in  October 
it  reached  seventy-four  and  seven-eights,  and  during  election  week 
was  priced  at  ninety-four  and  three-eights  cents  a  bushel.  The  silver 
advocates  quickly  asserted  that  the  money  power  was  putting  up  the 
price  over  the  election  period  to  delude  the  farmers.  The  sound 
money  element,  on  the  other  hand,  gave  forth  the  assertion  that  under 
a  free  coinage  standard  wheat  could  never  again  rise  so  far.  Since  the 
country  was  still  on  a  gold  standard  and  wheat  was  rising,  the  farmers 
and  others  decided  to  let  well  enough  alone,  the  sound  money  argu- 
ment held  sway,  and  the  election  went  for  McKinley  by  an  electoral 
vote  of  272  against  175  for  Bryan,  and  a  popular  plurality  of  six 
hundred  thousand. 

This  decisive  victory  for  sound  money  worked  a  complete  revolu- 
tion. Seldom  if  ever  had  such  a  change  been  accomplished  in  the 
country's  history.  On  November  second  the  desire  to  hoard  had  been 
so  great  that  there  had  been  a  long  line  of  people  at  the  sub-treasury 
in  New  York  and  the  banks  and  bullion  brokers  everywhere  were 
beset  with  an  insatiable  demand  for  gold.  Dealing  in  foreign  ex- 
change had  become  equally  intense  with  a  premium  of  as  much  as 
one  per  cent.  But,  on  November  fourth — the  day  after  the  election — 
the  premium  had  vanished  and  gold,  everywhere  a  drug  on  the  market, 
was  re-deposited  in  large  amounts. 

Had  the  election  taken  place  two  months  earlier,  it  is  highly  pos- 
sible that  the  silver  advocates  might  have  won.  Meantime,  those  in 
favor  of  sound  money  had  conducted  an  extensive  educational  cam- 
paign which  had  been  amply  seconded  by  the  rising  prices  of  wheat. 
Even  as  matters  stood,  however,  so  many  Republicans  elected  were 
not  strictly  for  a  gold  standard  that  it  became  understood  that  upon 
any  House  bill  on  currency  the  Senate  would  affix  an  amendment 


308  FINANCING  AX  EMPIRE 

providing  "for  the  free  and  unlimited  coinage  of  silver  at  the  ratio 
of  16  to  1*  without  the  aid  or  consent  of  any  other  nation"  and  this 
position  was  held  by  the  Senate  until  1900. 

Meantime  Bryan,  himself,  undaunted  by  his  defeat,  was  continu- 
ing to  spread  his  heresies  abroad  and  as  late  as  1899  the  Banker's 
Magazine  reported  that  in  an  address  he  had  asserted  that  in  the 
first  six  months  of  McKinley's  administration  there  had  been  more 
bank  failures  than  during  any  six  months  of  Cleveland's  second  term. 
As  a  matter  of  fact  there  had  been  six  hundred  and  four  such  failures 
between  March  4  and  September  4,  1893,  and  only  one  hundred  and 
eighty-six  between  the  same  dates  in  1897. 

In  spite  of  the  great  recovery  that  the  election  had  brought  to 
the  country,  and  the  fact  that  good  crops  were  being  harvested  in 
most  sections,  Illinois  was  to  have  another  opportunity  to  impose  a 
depressing  influence  on  the  country. 

In  December,  1896,  the  National  Bank  of  Illinois  failed.  This 
bank,  established  in  1871,  was  one  of  the  oldest  and  best  known  in 
Chicago.  It  had  successfully  survived  the  Chicago  Fire  and  the 
panics  of  1873  and  1893,  yet  now,  in  a  period  of  rapidly  improving 
conditions,  it  was  forced  into  the  hands  of  a  receiver  through  the 
speculative  manipulations  of  William  A.  Hammond  of  Evanston, 
the  bank's  second  vice-president.  In  volume  of  assets  and  liabilities 
involved  this  failure  was  the  largest  that  had  yet  occurred  in  the  his- 
tory of  the  national  banking  system.  The  bank  had  an  authorized 
capital  of  one  million  dollars,  a  surplus  of  like  amount,  and  undivided 
profits  amounting  to  $315,213.  In  all,  its  assets  aggregated  over 
fifteen  million  dollars.  At  the  time  of  the  failure  liabilities  to  de- 
positors and  creditors,  other  than  stockholders,  exceeded  twelve  mil- 
lion dollars. 

For  a  long  time  this  institution  had  been  considered  an  "honor 
roll"  bank  because  it  was  one  of  the  few  with  a  surplus  equal  to  its 
capital  stock.  Furthermore,  its  undivided  profits  account  showed 
that  it  was  making  excellent  progress  toward  its  second  million  in 
surplus.  For  years  the  bank  had  paid  dividends,  usually  of  twelve 
per  cent,  and  the  last  quarterly  dividend  of  three  per  cent  had  been 
paid  in  the  previous  October.  The  statement  call  of  October  6,  1896, 
had  shown  this  to  be  the  second  largest  national  bank  in  Chicago. 

George  Schneider,  president  of  a  number  of  banking  houses  and 
one  time  president  of  the  Chicago  Clearing  House  Association,  was 
the  bank's  president,  but  as  he  was  growing  old,  he  had  gradually 


HISTORY  OF  BANKING  IN  ILLINOIS  309 

relinquished  his  hold  and  put  the  affairs  of  the  institution  into  the 
hands  of  Hammond,  who  had  grown  up  with  the  bank  and  developed 
a  general  reputation  for  sound  business  judgment.  Except  for  the 
fact  that  he  was  the  only  advocate  of  free  silver  among  the  executive 
officers  of  Chicago's  banks,  he  was  respected  as  a  man  of  such  quali- 
ties as  befitted  a  conservative  banker.  Also,  he  was  of  good  family. 
His  father  was  the  Reverend  H.  L.  Hammond,  who  for  years  had 
been  prominent  in  Congregational  circles,  and  he  was  a  nephew  of 
Colonel  Charles  Hammond,  general  manager  of  the  Burlington  Rail- 
way. Personally,  Hammond  was  supposed  to  have  sound  financial 
habits.  He  had  worked  his  way  from  a  small  clerkship  in  the  bank 
to  a  place  where  he  owned  one  of  the  finest  homes  in  Evanston.  In 
fact,  up  to  fifteen  years  before  the  failure,  his  habits  had  been  worthy 
of  the  reputation  he  carried,  but  about  that  time  he  entered  upon 
certain  speculations,  which  were  innocent  enough  in  that  at  first  they 
involved  only  the  use  of  his  own  funds,  but  which  in  time  developed 
to  such  an  extent  that  it  became  necessary  to  resort  to  the  funds  of 
the  bank. 

In  addition  to  Schneider  and  Hammond,  the  management  of  the 
bank  was  supposedly  in  the  hands  of  Walter  L.  Peck,  vice-president, 
and  Carl  Moll,  cashier;  while  the  directors  were  George  E.  Adams, 
Paul  Juergens,  William  A.  Hammond,  Charles  R.  Corwith,  Walter 
L.  Peck,  William  D.  Kerfoot,  A.  S.  Campbell,  Robert  E.  Jenkins, 
Silas  B.  Cobb,  William  R.  Page,  and  George  Schneider.  These 
officers  and  directors,  however,  claimed  that,  like  President  Schneider, 
they  had  believed  implicitly  in  the  ability  and  integrity  of  Hammond 
and  had  therefore  left  things  to  his  management,  supposing  that  he 
was  keeping  them  informed  of  such  affairs  as  should  be  of  interest 
to  them. 

When  a  statement  call  was  made  on  October  6  the  books  had 
been  so  skillfully  juggled  that  there  was  no  indication  of  the  fact  that 
for  years  Hammond  had  been  carrying  on  speculations  and  financing 
a  number  of  concerns,  chief  among  which  was  the  Calumet  Electric 
Street  Railway,  a  line  which  had  made  important  extensions  until 
it  had  about  seventy-five  miles  of  track  running  through  a  territory 
not  sufficiently  settled  to  enable  the  line  to  produce  enough  revenue 
to  meet  its  requirements.  These  loans,  which  in  many  cases  far  ex- 
ceeded the  lawful  limit,  were  not  recorded  as  such,  but  in  order  to 
deceive  the  bank  examiner,  had  been  concealed  in  other  accounts. 
The  statement  read  as  follows : 


310                                       FINANCING  AN  EMPIRE 

RESOURCES  LIABILITIES 

Loans  and  discounts $  9,199,642       Capital  stock  paid  in $  1,000,000 

Overdrafts    31,904       Surplus    1,000,000 

U.  S.   Bonds   against   circulation—  Undivided  profits 315,213 

par  value 50,000      Nat'l  bank  notes  outstanding 45,000 

Other  bonds 181,200      Dividends   unpaid 3,462 

Real  estate 91,243       Deposits 12,175,766 

5%  circulation  redemption  fund. . .  2,250 . 


Cash  Resources: 

Cash $2,489,325 

Due  from  banks 2,022,739 

Exchanges  for  Clear- 
ing House 469,137 

Due  from  U.  S. 
Treasurer   2,000         4,983,202 


Total   $14,539,442 


Total $14,539,442 

Upon  examination  in  December,  the  bank  examiner  found  that 
Hammond  allowed  large  overdrafts  on  the  part  of  the  concerns  in 
which  he  was  interested  and  that,  to  avoid  suspicion,  he  had  been  in 
the  habit  of  transferring  these  to  other  accounts.  Thus,  his  statements 
appeared  good  enough  to  deceive  his  directors,  the  public,  and  the 
bank  examiner  for  many  years.  Once  this  discovery  was  made,  the 
examiner  brought  it  to  the  attention  of  the  Chicago  Clearing  House 
Association  of  which  the  National  Bank  of  Illinois  was  a  member. 
A  meeting  was  called  to  make  an  investigation  and  on  Sunday  night, 
December  20,  the  Clearing  House  Committee,  much  to  the  surprise  of 
the  financial  interests  of  the  city,  adopted  a  resolution  suspending 
the  bank  from  all  its  privileges.     The  resolution  read  as  follows: 

"Whereas  the  attention  of  the  committee  has  been  lately  called 
to  the  administration  of  the  affairs  of  the  National  Bank  of  Illinois, 
and  it  now  appears  through  statements  made  to  this  Committee  by 
one  of  the  vice-presidents  of  said  bank  and  from  the  reports  of  the 
national  bank  examiner  that  by  reason  of  unwarrantable  and  injudi- 
cious loans  the  capital  and  surplus  of  said  bank  are  seriously  imperiled, 
if  not  entirely  lost.    Now,  therefore, 

"Resolved,  That  under  the  powers  conferred  upon  this  Committee 
by  the  by-laws  of  the  Clearing  House  Association  of  Chicago,  it  does 
hereby,  suspend  said  National  Bank  of  Illinois  from  the  privileges  of 
membership  in  said  Association  to  take  effect  immediately. 

"Resolved,  That  the  secretary  of  this  Committee  be  and  he  is 
hereby  instructed  to  send  a  copy  of  these  resolutions  to  each  member 
of  the  Association  and  to  report  the  same  at  a  general  meeting  of  the 
Association  to  be  held  on  Monday,  December  twenty-first,  at  3:30 
in  the  afternoon. 


HISTORY  OF  BANKING  IN  ILLINOIS  311 


a~ 


'In  taking  this  action  the  Committee  deems  it  proper  to  say: 
"First — That  the  cash  resources  of  the  bank  are  within  the  re- 
quirements of  the  law,  and  if  as  a  result  of  this  action  said  bank  should 
suspend  payment  and  liquidate  its  liabilities,  a  large  and  speedy  divi- 
dend will  be  available  to  creditors. 

"Second — It  is  the  declared  opinion  of  the  officers  and  directors  of 
the  bank  that  its  resources  are  ample  to  pay  all  of  its  liabilities  in  full, 
one  hundred  cents  on  the  dollar,  and  it  is  the  opinion  of  the  Com- 
mittee that  adjusted  claims  against  said  bank  may  be  considered 
ample  collateral  security  for  loans  at  seventy-five  per  centum  of  their 
face  value,  and  in  event  of  liquidation  by  said  bank  we  will  recommend 
to  the  associated  banks  an  arrangement  whereby  such  loans  may  be 
made  available  to  creditors  of  said  bank  as  their  convenience  may 
require. 

"Isaac  G.  Lombard, 

"L.  J.  Gage, 

"Orson  Smith, 

"C.  J.  Blair, 

"E.  G.  Keith, 

"Clearing  House  Committee." 
In  making  his  investigation  the  receiver  found  that  the  books 
had  been  so  cleverly  manipulated  over  so  long  a  period  of  time  that 
in  order  to  trace  doubtful  transactions  it  became  necessary  to  go  back 
to  the  beginning  of  every  account.  In  fact,  even  the  most  critical 
analysis  of  bank  examiners  failed  to  disclose  the  fact  that  enormous 
loans  had  been  made  without  adequate  security  and  in  direct  violation 
of  the  law.    Among1  the  bad  loans  the  bank  had  made  were: 


•to 


Advanced  on  2,850  $1,000  bonds  of  the  Calumet 

Electric  Railway $2,475,000 

Advanced  to  Robert  Berger  (son-in-law  of 

Schneider)    500,000 

Advanced  to  G.  A.  Weiss  (son-in-law  of  Schneider)       500,000 

Advanced  to  Angus  &  Gindele  (Angus,  relative  to 

Schneider)    250,000 

Other  bad  debts 818,000 

Total   $4,543,000 

Meantime,  the  bank  examiner  issued  his  report  of  the  condition  of 
the  bank  as  of  November  30,  which  read  as  follows : 


312  FINANCING  AX  EMPIRE 

RESOURCES  LIABILITIES 

Loans  and  discounts $  8,931,740       Capital  stock  paid  in $  1,000,000 

Overdrafts 83,907       Surplus    1,000,000 

U.  S.  bonds  against  circulation.  . . .  50,000       Undivided)  profits 401,951 

Stocks,  securities,  claims,  etc 181,200       Dividends  unpaid 120 

Heal  estate  and  mortgages 91,243       Individual  deposits 7,937,195 

Transit  accounts 901,923       Due  to  other  national  banks 2,401,310 

Due  from  approved  reserve  agents.        416,863       Due  to  state  banks 2,261,415 

Due  from  other  national  banks 929,754       Circulating  notes  on  hand 45,000 

Due  from  state  banks 535,078  

Interest  paid 68,407  Total $  15,046,992 

Cash  short 147 

Clearing-house  difference 2,739 

Bills  of  other  national  banks 75,986 

Fractional  paper  currency,  nickels 

and  cents 861 

Cash  item 39,894 

Specie 1,799,616 

Legal  tender  notes 798,440 

V.  S.  certificates  of  deposit  for 

legal  tender  notes 135,000 

5%  redemption  fund 2,256 

Due  from  U.  S.  treasurer 20,000 


Total $15,046,992 

Although  at  first  it  seemed  that  President  Schneider's  fondness 
for  his  relatives  may  have  been,  in  part  at  least,  the  cause  for  the 
downfall  of  the  bank,  it  developed  upon  further  investigation  that 
the  real  fault  lay  in  Hammond's  speculating  and  "kiting"  with  bank 
funds.  Neither  the  president  nor  the  directors  were  informed  of  the 
affairs  of  the  bank  and  it  is  possible  that  Schneider  was  not  even 
fully  aware  of  the  large  loans  made  to  his  family. 

The  collapse  of  the  bank  was  followed  by  that  of  a  number  of 
business  concerns  depending  upon  it  for  assistance,  most  prominent 
among  which  were  the  private  banking  firms  of  E.  S.  Dreyer  and 
Company,  and  Wasmansdorf  and  Heinemann,  and  the  Roseland 
Bank,  a  small  suburban  institution.  The  last,  which  was  owned  by 
Frederick  Wiersema,  had  assets  of  seventy-five  thousand  dollars  and 
deposits  of  about  fifty  thousand,  and  was  in  sufficiently  strong  posi- 
tion to  reopen  for  business  two  days  after  its  closing.  E.  S.  Dreyer 
and  Company  was  an  old  institution  with  a  large  German  clientele. 
Its  liabilities  were  reported  at  about  $1,350,000  with  but  small  assets. 
Although  this  house  had  a  number  of  loans  of  long  standing  with  the 
bank,  the  directors  seem  not  to  have  known  anything  about  them. 
This  may  have  been  due  partly  to  the  fact  that  Schneider's  son-in-law, 
Berger,  was  a  partner  in  the  firm.  Wasmansdorf  and  Heinemann 
was  in  fairly  good  condition  at  the  time  of  its  collapse,  showing  lia- 
bilities of  $415,000  against  assets  of  $550,000.  Mr.  Wasmansdorf 
was  respected  for  his  integrity  and  ability  and   the  failure  of  his 


^i   / 


A   SPIRIT   PICTURE    OF   A    FREE-SILVER    MAN 
Sound  money  cartoon 


COIN    RIDING   TO    THE    DEVIL 

Sound  money  cartoon 


HISTORY  OF  BANKING  IN  ILLINOIS  315 

house  caused  him  such  distress  that  within  a  week  he  committed 
suicide. 

Since  the  Clearing  House  Association  had  definitely  refused  to 
help  the  National  Bank  of  Illinois  out  of  its  difficulties,  all  other 
banks  in  Chicago  stood  in  danger  of  having  runs  started  on  them. 
To  avoid  this  and  the  panic  which  would  result,  the  Comptroller  of 
the  Currency  ordered  publication  of  bank  statements  as  of  the  close 
of  business  on  December  17.  As  these  statements  showed  that  in 
fourteen  national  banks,  including  the  larger  ones  of  the  city,  there 
were  deposits  of  $94,391, 4.52  against  $83,2.58,208  on  October  6 — the 
date  of  the  previous  statement — and  that  cash  resources  were  more 
than  fifty  per  cent  of  the  deposits,  whereas  the  law  required  only 
twenty-five  per  cent,  the  desired  confidence  was  secured  and  there 
was  little  general  disturbance  in  the  city. 

The  assets  of  the  failed  institution  brought  something  over  seven 
million  dollars.  On  the  assessment  of  shareholders,  less  than  nine 
hundred  thousand  dollars  was  realized  instead  of  the  million  sup- 
posedly available.  The  receivership  itself  was  not  closed  for  ten 
years.  In  1906  the  Calumet  Electric  Railway  was  sold  and  it  was 
not  until  that  transaction  was  completed  that  the  remaining  assets  of 
the  bank  were  liquidated. 

For  a  number  of  days  after  the  failure  Hammond  assumed  a  con- 
fident and  innocent  attitude  and  was  seen  a  great  deal  about  town. 
Newspapers  commented  on  his  manner  of  appearing  at  his  club  for 
lunch,  but  pressure  of  both  law  and  public  opinion  became  too  great 
and  within  a  few  days  his  body  was  found  in  Lake  Michigan  not  far 
from  his  home  in  Evanston. 

E.  S.  Dreyer,  whose  private  banking  house  failed  as  a  result  of 
Hammond's  manipulations,  was  indicted  under  the  state  laws  for 
accepting  a  deposit  after  he  knew  his  bank  was  insolvent.  Some  de- 
positor, it  is  said,  had  hastened  to  the  bank  to  put  in  his  money  and 
got  there  shortly  after  the  doors  had  been  closed.  However,  the  door- 
man let  him  in  and  a  teller  accepted  his  money.  As  the  bank  did 
not  open  the  next  day,  the  institution  was  criminally  liable  and  Dreyer 
remained  in  prison  until  1905  as  a  consequence. 

Since,  in  addition  to  staging  the  largest  national  bank  failure 
in  history,  the  month  of  December  was  also  to  be  disturbed  by  the 
fact  that  Congress  was  still  debating  the  Cuba  question  in  a  way 
which  kept  the  United  States  in  a  constant  state  of  pending  war  with 


316  FINANCING  AN  EMPIRE 

Spain,  the  year  1896  was  to  close  in  almost  as  unhappy  a  state  as  that 
in  which   it  began. 

In  spite  of  the  unpleasant  national  situation  which  in  several  re- 
spects had  centered  in  Illinois,  the  state  was  enjoying  unusually  good 
crops  and  at  the  same  time  her  large  iron  industry  was  beginning  to 
mend.  It  may  be  said  that  with  the  opening  of  1897  the  long  period 
of  business  depression  was  definitely  ended  and  the  upward  swing, 
which  was  to  continue  for  a  decade  in  the  country  as  a  whole,  had 
begun.  That  this  movement  was  able  to  continue  as  it  did  was  doubt- 
less due  in  large  part  to  further  victories  for  sound  money  as  well  as 
to  continued  good  crops  and  consequent  unusual  exports  of  mer- 
chandise. These  things  created  a  general  spirit  of  confidence  and 
provided  a  basis  for  increasing  expansion.  In  this  period  bank  clear- 
ings grew  rapidly  and  Chicago  definitely  established  herself  in  this 
regard  as  second  only  to  New  York. 

The  year  1898  found  the  country  with  a  greater  increase  in  its 
stock  of  gold  than  ever  before  known  in  all  its  history.  The  product 
for  that  year  is  believed  to  have  exceeded  even  that  of  the  richest 
period  of  California  discoveries;  imports  surpassed,  by  as  much  as 
fifty  per  cent,  the  highest  sum  ever  before  reported  by  customs 
records,  and  these  enormous  receipts  were  offset  only  by  an  unim- 
portant amount  of  exports.  It  was  said  at  the  time  that  never  before 
had  any  commercial  nation  received  such  a  mass  of  gold  in  a  single 
year  for  the  supply  of  its  own  requirements.  Mining  products  and 
imports  exceeded  even  those  of  England,  which  was  the  great  dis- 
tributing reservoir  of  gold  for  the  world.  It  is  doubtful  if  this  situa- 
tion could  have  occurred  had  there  still  been  any  doubt  about  the 
soundness  of  America's  currency  problem. 

Nevertheless,  it  did  not  take  much  urging  to  make  President  Mc- 
Kinley  attempt  to  secure  an  international  agreement  in  favor  of  the 
greater  use  of  silver  as  money.  At  the  time  this  subject  was  being 
rather  generally  discussed  in  Europe,  so  it  is  possible  that  our  govern- 
ment was  justified  in  taking  it  up.  The  President  sent  a  commission 
abroad  which  was  pleasantly  received  in  the  capitals  of  Europe,  but 
its  efforts  produced  no  responsive  interest.  Meantime,  the  failure  of 
this  mission  had  been  assumed  at  home  and  so  had  no  disagreeable 
effect  on  public  sentiment. 

By  now  Lyman  J.  Gage  of  Chicago  had  resigned  his  position  as 
president  of  the  First  National  Bank  so  that  he  might  assume  the 
duties  of  Secretary  of  the  Treasury.     In  this  new  capacity,  Mr.  Gage 


HISTORY  OF  BANKING  IN  ILLINOIS  317 

brought  his  years  of  experience  and  study  to  the  solution  of  the  na- 
tional currency  problems.  At  the  time  of  the  opening  of  the  regular 
session  of  Congress  in  1897  he  submitted  a  complete  plan,  the  purpose 
of  which  was  to  put  the  country  squarely  on  a  gold  basis.  In  support 
of  his  efforts,  the  business  interests  of  the  nation  assembled  delegates 
at  a  convention  in  Indianapolis  at  which  were  present  the  ablest  men 
in  the  country.  One  of  the  most  noteworthy  of  them  was  Illinois' 
representative,  J.  Laurence  Laughlin,  the  economist,  with  whose 
valuable  aid  the  commission  prepared  a  proposed  law  for  currency 
and  coinage  reform,  together  with  an  academic  discussion  of  the 
whole  subject  to  be  submitted  to  Congress  and  the  public.  This 
report,  an  octavo  volume  of  six  hundred  pages,  revealed  a  great  deal 
of  research.  It  contained  many  historical  documents  which  were  pub- 
lished in  full  for  the  first  time,  because  of  lack  of  printing  facilities 
at  the  time  of  their  origination,  and  on  the  whole  was  so  valuable  a 
volume  that  it  has  become  one  of  the  important  reference  books  of 
the  country.  Throughout  the  year  1898  this  was  in  preparation  and 
ultimately  led  to  the  Act  of  1900,  which  declared  the  gold  dollar  to 
be  the  standard  unit  of  value  and  that  all  other  forms  of  money  issued 
or  coined  by  the  United  States  were  to  be  maintained  on  a  parity 
with  it. 

In  addition  to  having  Mr.  Gage  in  the  position  of  Secretary  of  the 
Treasury,  Illinois  also  supplied  the  national  government  with  an- 
other Comptroller  of  the  Currency,  this  time  in  the  person  of  Charles 
G.  Dawes,  later  to  become  Vice-President  of  the  nation,  who  entered 
the  Comptrollership  in  1898  upon  the  retirement  of  Mr.  Eckels.  Mr. 
Dawes  also  took  an  active  part  in  currency  reform  and  during  his 
term  of  office — 1898  to  1901 — suggested  a  plan  which  some  years  later 
was  to  be  incorporated  in  the  principles  of  the  Federal  Reserve 
System.     Mr.  Dawes'  plan  was  as  follows: 

"First — The  existing  bank-note  system,  based  upon  deposit  of 
Government  bonds  as  security,  should  not  now  be  abandoned. 

"Second — For  the  purpose  of  allowing  elasticity  to  bank-note 
issues  to  protect  the  banks  and  the  community  in  time  of  panic,  a 
small  amount  of  uncovered  notes,  in  addition  to  the  secured  notes, 
should  be  authorized  by  law  under  the  following  limitations:  They 
should  be  subjected  to  so  heavy  a  tax  that  they  could  not  be  issued 
in  normal  times  for  the  purpose  of  profit,  but  would  be  available 
in  times  of  emergency.  The  tax  should  be  so  large  upon  the  solvent 
issuing  banks  as  to  provide  a  fund  which,  in  connection  with  the  pro 


318  FINANCING  AX  EMPIRE 

rata  share  of  the  assets  of  an  insolvent  bank,  would  be  sufficient  to 
redeem  the  notes  in  full,  without  necessitating  any  preference  of  note 
holders  over  depositors  of  any  insolvent  issuing  bank.  The  tax  should 
be  so  large  as  to  force  this  currency  into  retirement  as  soon  as  the 
emergency  passes. 

"Such  a  currency  could  be  used  only  to  lessen  the  evil  effects  of 
the  too  rapid  liquidation  of  credits  which  are  collapsing  under  a 
financial  panic,  but  could  not  be  profitably  used  as  a  basis  of  business 
speculation  and  inflation.  It  should  be  to  the  business  community 
what  the  clearing  house  certificates  are  to  our  cities  in  times  of  panic 
— a  remedy  for  an  emergency,  not  an  instrument  of  currency  busi- 
ness." 

Besides  the  constantly  impending  war  with  Spain,  one  other  oc- 
currence might  have  depressed  business  in  1898,  and,  indeed,  it  did 
bring  a  slight  halt  when  there  was  an  attempted  revival  of  the  silver 
issue.  This,  however,  was  quickly  settled,  for  by  this  time  the  country 
had  put  itself  definitely  in  favor  of  gold,  and  the  silver  party  was  in  a 
hopeless  minority  with  its  weakness  now  most  pronounced  in  its 
former  strongholds — the  agricultural  sections  of  the  west  which  had 
recently  prospered  so  greatly  from  the  high  prices  of  wheat  and  other 
products  such  as  had  i:>revailed  for  the  past  two  years.  In  fact,  every- 
where the  month  of  December  was  unprecedented  in  history.  Never 
before  had  bank  clearings  been  so  large  nor  the  monthly  stock  and 
bond  sales  mounted  so  high,  nor  had  iron  production  been  on  such  an 
enormous  scale. 

The  following  April,  war  was  declared  with  Spain,  but  it  proved 
to  be  such  a  short-lived  war  and  marked  by  such  brilliant  and  over- 
whelming victories  that  its  influence  as  a  depressing  agency  quickly 
passed  and  instead  it  became  a  stimulus  for  the  revival  of  trade.  So 
the  year  1899,  like  those  which  had  preceded  it,  was  characterized  by 
continued  good  business.  However,  the  expansion  produced  threw 
a  large  quantity  of  semi-speculative  securities  on  the  market  as  a 
result  of  which  the  public  again  began  to  show  signs  of  lessened  con- 
fidence. 

Although  Illinois  had  contributed  the  outstanding  bank  failures 
of  the  country  to  the  general  depression,  still  her  failures  on  the 
whole  were  conspicuous  rather  than  many.  During  the  year  follow- 
ing September  1,  1893,  only  four  bank  failures  occurred  in  the  state 
and  all  of  these  were  of  private  banks;  their  assets  aggregated 
$423,000  and  liabilities  amounted  to  $534,000.     Between  the  years 


HISTORY  OF  BANKING  IN  ILLINOIS  319 

1892  and  1899  there  were  only  three  failures  of  banks  chartered 
under  the  Illinois  State  Banking  Law,  one  of  these  occurring1  in  each 
of  the  years  1896,  1897,  and  1899.  Since  these  institutions  had  now 
come  to  greatly  outnumber  the  national  banks  of  Illinois,  it  is  prob- 
able that  they  had  given  satisfaction  in  more  ways  than  the  added 
departments  allowed  them  which  were  denied  to  national  banks.  De- 
posits in  these  state  banks  had  increased  in  a  remarkable  way  in  the 
decade  between  1890  and  1900.  In  the  aggregate  they  rose  from 
$35,753,854  in  December,  1890,  to  $153,514,436  on  October  1,  1900, 
and  there  was  an  increase  of  more  than  one  hundred  per  cent  in  de- 
posits between  the  close  of  1896  and  the  opening  of  the  new  century. 

After  the  savings  bank  crash,  building  and  loan  associations  found 
great  popularity  in  the  state,  but  during  the  long  depression  they 
suffered  a  marked  decline,  from  which  they  later  recovered  to  the 
extent  of  making  Illinois  one  of  the  leading  states  in  the  Union  in  the 
number  of  such  organizations. 

Banking  and  business  of  the  state  were  further  aided  when  in  1897 
there  occurred  a  drought  in  France,  a  wet  harvest  in  Russia,  and 
floods  in  the  Danube  valley,  all  of  which  reduced  the  crops  of  these 
sections  by  approximately  three  million  bushels  in  the  aggregate. 
That  same  year  the  American  crop  was  one  hundred  million  bushels 
larger  than  in  1896  and  sold  at  prices  not  realized  by  farmers  for  six 
years.  Chicago,  as  the  wheat  trading  center,  was  getting  as  much  as 
a  dollar  a  bushel.  This  great  prosperity  which  came  to  the  farmers 
was  soon  communicated  to  the  nation  as  a  whole  and  so  Chicago,  but 
recently  the  seat  of  depression,  was  now  the  center  of  nation-wide 
prosperity. 


CHAPTER  XVII 
EARLY  TWENTIETH  CENTURY 

Banking  law  of  1900 — Revival  of  the  silver  party — Eventful  year  1901  with  the  formation 
of  the  United  States  Steel  Corporation — Stock  Exchange  panic — Crop  failures  and 
labor  troubles — McKinley's  death  and  break  in  copper  market — Lyman  J.  Gage — 
Business  in  1902 — Corner  in  corn — Trust  busting — Depression  of  1903  and  1904 — 
Democrats  proclaim  themselves  in  favor  of  the  gold  standard — Purchase  of  the 
National  Bank  of  North  America  by  the  Continental  National  Bank  of  Chicago — 
Failure  of  the  three  Walsh  banks — Comptrollers  of  the  Currency  supplied  by 
Illinois — Development  of  anti-capitalistic  sentiment — National  Bank  law  amend- 
ment of  1906 — Failure  of  the  Milwaukee  Avenue  State  Bank — Chicago  convention 
of  insurance  commissioners — Liquidation  of  United  States  finance  bills. 

Largely  through  the  efforts  of  Lyman  J .  Gage  of  Chicago  during 
his  term  as  Secretary  of  the  Treasury,  and  the  resulting  report  pre- 
pared by  the  commission  appointed  at  the  Indianapolis  convention, 
in  a  single  legislative  measure,  passed  on  March  14,  1900,  there  were 
included  a  number  of  reforms  in  the  monetary  system  into  which 
years  of  effort  had  gone.  This  new  act  directly  encouraged  the  or- 
ganization of  banks  in  towns  and  villages  by  permitting  national 
banks  to  have  a  capital  stock  of  only  twenty-five  thousand  dollars  in 
communities  with  a  population  of  not  more  than  three  thousand. 
Also,  it  provided  that  "the  dollar  consisting  of  twenty-five  and  eight- 
tenths  grains  of  gold  nine-tenths  fine,  as  established  by  section  thirty- 
five  hundred  and  eleven  of  the  Revised  Statutes  of  the  United  States, 
shall  be  the  standard  unit  of  value,  and  all  forms  of  money  issued  or 
coined  by  the  United  States  shall  be  maintained  at  a  parity  of  value 
with  this  standard  and  it  shall  be  the  duty  of  the  Secretary  of  the 
Treasury  to  maintain  such  parity." 

The  first  provision  encouraged  smaller  banking  institutions  to 
incorporate  under  the  national  law  to  such  an  extent  that  between 
the  date  of  the  passage  of  the  law  and  the  end  of  October,  1902,  sixty- 
six  national  banks  were  organized  in  Illinois  of  which  forty-nine  had 
a  capital  of  less  than  fifty  thousand  dollars.  Four  of  these  were 
state  banks  reorganized  under  national  charters.  Also,  during  the 
first  fourteen  years  in  which  the  law  was  in  operation,  twenty-four 

,320 


HISTORY  OF  BANKING  IX   ELLINOIS  „         321 

state  banks  either  changed  into  national  banking  institutions  or  were 
consolidated  with  them. 

The  second  provision  was  more  difficult  to  carry  out,  for,  as  Sec- 
retary Gage  showed  in  his  report  for  December,  1900,  the  law  did 
not  provide  any  method  by  which  the  Secretary  of  the  Treasury  could 
maintain  a  parity  of  all  forms  of  money  issued  or  coined  by  the 
United  States  with  the  standard  gold  dollar.  At  the  same  time  the 
Secretary  again  pointed  out  the  need  of  an  elastic  currency  and  once 
more  brought  forth  his  contention  that  America  needed  a  federated 
system  of  banks,  one  of  the  chief  functions  of  which  should  be  the 
issue  of  currency  in  proportion  to  public  demand.  Mr.  Gage  had 
long  been  opposed  to  the  system  of  greenbacks  and  now  hoped  that, 
through  the  reforms  he  suggested,  an  ample  paper  currency  might 
be  secured  which  would  not  only  prove  safe  to  the  holder  but  also 
expand  and  contract  in  sympathy  with  business  needs. 

Mr.  Gage's  reforms  in  this  regard  had  not  been  incorporated  in 
the  law  of  1900  and  it  was  to  be  some  years  before  they  were  to  be 
put  into  general  effect.  However,  the  Act  of  1900  did  make  the  issue 
of  bank  notes  more  profitable  to  the  national  banks  than  previously 
had  been  the  case,  and  as  a  result,  between  February  13,  1900.  and 
August  22,  1907,  this  note  circulation  rose  from  $20-1,900,000  to 
$551,000,000.  Thus,  nearly  $350,000,000  was  provided  to  meet  the 
needs  for  money  and  to  supply  reserve  requirements  of  state  banks 
and  trust  companies.  Furthermore,  this  additional  paper  currency 
enabled  the  national  banks  to  secure  and  retain  a  larger  proportion 
of  other  money  than  formerly.  Consequently,  the  cash  holdings  of 
national  banks  throughout  the  country  increased  from  $388,900,000 
on  October  5,  1897,  to  $701,600,000  on  October  22,  1907.  This  was 
enough  to  enable  these  banks  almost  to  double  their  productive  invest- 
ments without  diminishing  the  ratio  of  cash  to  deposits. 

In  Illinois  the  amount  of  bank  notes  in  circulation  practically 
doubled  in  a  single  year,  increasing  from  seven  million  dollars  in  1899 
to  more  than  thirteen  million  in  1900.  This  increase,  however,  was 
not  quite  so  large  as  was  the  rate  for  the  country  as  a  whole. 

The  passage  of  the  Currency  Law  was  doubtless  the  most  im- 
portant event  occurring  in  the  year  1900,  but  one  which  for  a  time 
gave  promise  of  an  equally  important  effect  on  the  financial  affairs 
of  the  nation,  was  the  revival  of  the  silver  party.  Five  days  after 
the  passage  of  the  law,  Bryan  met  his  Democratic-Populist  party  in 
convention  in  Nebraska  and  declared  for  the  free  and  unlimited  coin- 
age of  silver  and  the  substitution  of  greenbacks  for  national  bank 


322  FINANCING  AN  EMPIRE 

notes.  In  the  presidential  campaign  of  that  year  Bryan  was  again 
nominated  and  again  ran  on  the  silver  platform.  This  aroused  a  great 
deal  of  fear  lest  the  silver  advocates  he  ahle  to  upset  financial  affairs 
as  they  had  done  in  1896,  but  by  this  time  the  country  as  a  whole  was 
so  prosperous  as  soon  to  make  it  plain  that  the  arguments  of  the  silver 
men  did  not  hold  sufficient  conviction  to  uproot  the  established  gold 
standard.  Furthermore,  the  general  platform  of  the  Democratic 
party  had  been  so  revised  that  the  sound  money  Democrats  were  will- 
ing to  go  back  into  it,  and  Bryan  stood  pretty  much  alone  in  his 
interpretation  of  that  platform  as  standing  for  the  "free  and  un- 
limited coinage  of  silver."  The  re-election  of  McKinley  by  a  ma- 
jority largely  increased  over  that  of  the  previous  election,  was 
accepted  by  the  nation  as  indorsing  and  confirming  the  action  of 
Congress  in  adopting  the  gold  standard  by  the  Act  of  March  14,  1900. 

On  the  whole  the  year  1900  was  progressive,  with  a  large  volume 
of  trade.  In  many  lines  commerce  even  surpassed  that  of  1899  which, 
up  to  that  time,  had  been  the  largest  trade  year  in  the  history  of 
the  country.  Up  to  1900  the  United  States  had  frequently  looked  to 
Europe  for  financial  assistance,  but  now  the  bankers  of  our  country 
reversed  this  position  for  the  first  time  and  floated  large  European 
loans  here.  At  the  same  time  there  occurred  a  marked  reaction  in 
commodity  prices,  so  decided,  in  fact,  as  to  appear  to  the  careless 
observer  to  be  a  period  of  trade  depression. 

About  this  time  throughout  the  commercial  and  banking  world 
there  was  evidenced  a  tendency  toward  consolidation.  In  banking, 
however,  the  law  prevented  the  elimination  of  small  institutions  with 
limited  capital,  even  in  the  largest  cities,  through  the  prohibition  of 
branch  banking.  This  avoided  a  tendency  toward  the  establishment 
of  great  central  institutions  such  as  were  developing  in  other  business 
corporations. 

The  year  1901  was  one  of  the  most  eventful  so  far  experienced  in 
the  history  of  the  country.  During  that  year  there  occurred  six 
outstanding  events,  all  but  one  of  which  were  influences  of  so  de- 
pressinga  nature  that,  had  it  not  been  for  the  good  effect  of  the  law 
of  1900,  disaster  must  have  befallen  the  confidence  and  finances  of 
the  country.  j* 

The  only  important  occurrence  not  of  a  depressing  nature  was  the 
formation  of  the  United  States  Steel  Corporation  through  a  com- 
bination of  the  leading  iron  and  steel  properties  of  the  United  States. 
This  became  the  first  billion  dollar  corporation  in  the  country  and 


HISTORY  OF  BANKING  IX  ILLINOIS  .       32:5 

was  to  play  an  important  part  in  the  subsequent  business  development 
of  the  state  of  Illinois. 

The  five  depressing  influences  were  as  follows: 

1.  On  May  3,  1901,  there  occurred  a  stock-market  panic  in  New 
York  in  which  price  increases  that  had  accumulated  over  a  period  of 
many  weeks  were  wiped  out  within  a  half  hour.  The  consequent 
losses — particularly  to  speculators — were  enormous.  This  panic, 
which  kept  pretty  well  to  the  Stock  Exchange,  was  caused  in  large 
part  by  the  influence  of  a  corner  in  the  stock  of  the  Northern  Pacific 
Railroad,  the  shares  of  which  rose  in  price  from  one  hundred  to  one 
thousand  dollars  each  during  the  course  of  the  trouble.  Furthermore, 
the  operation  of  this  corner  had  brought  about  a  fundamental  weak- 
ness in  conditions  through  the  apprehension  created  by  the  various 
moves  of  antagonistic  capitalists,  which  were  interpreted  as  meaning 
that  not  only  were  the  dominant  railway  interests  of  the  country  not 
working  in  harmony,  but  they  were  actually  engaged  in  a  bitter 
contest. 

2.  The  summer  was  one  of  unusually  great  heat  and  drought 
resulting  in  the  worst  failures  of  the  corn  crop  on  record. 

3.  The  steel  workers  staged  a  great  strike  lasting  from  July  1 
to  September  15.  This  came  about  over  the  question  of  whether  or 
not  the  new  Amalgamated  Association  should  be  allowed  to  extend 
its  authority  over  the  non-union  mills.  Also,  in  the  month  of  May, 
there  began  a  strike  of  machinists  for  a  nine-hour  day  at  the  same 
pay  as  had  been  received  for  ten  hours.  Generally,  this  strike  ended 
in  July,  but  in  Chicago  at  the  plant  of  the  Allis-Chalmers  Company, 
it  lasted  until  the  end  of  the  year. 

4.  President  McKinley  died  as  a  result  of  a  shot  received  at  the 
hands  of  an  assassin  while  j>resent  at  a  reception  at  the  Pan-xVmerican 
Exposition  in  Buffalo  on  September  6.  The  day  after  the  shooting 
the  markets  of  the  country  declined  and  there  were  everywhere  signs 
of  an  approaching  panic.  Later,  however,  the  President  rallied  and 
conditions  improved.  When  he  died  on  September  1-1,  another  de- 
pression occurred  which,  however,  because  of  the  fundamental  strength 
of  conditions,  did  not  on  the  whole  last  for  long. 

5.  In  an  attempt  to  keep  up  the  price  of  copper,  the  Amalga- 
mated Copper  Company  put  forth  unwise  efforts  resulting  in  the 
importation  of  a  supply  of  less  expensive  metal.  This  lower-priced 
material  soon  flooded  the  market  and  brought  a  break  both  in  the 
metal  market  and  in  copper  stocks. 


324 


FINANCING  AN  EMPIRE 


Financial  journals  of  the  time  indicate  that  the  currency  reform, 
which  was  in  large  part  responsible  for  the  excellent  manner  in  which 
the  country  met  the  difficulties  of  1901,  was  due  in  many  respects  to 
the  efforts  of  Secretary  Lyman  J.  Gage  of  Chicago.  The  New 
York  Commercial  and  Financial  Chronicle  of  December  7,  1901,  said 
of  Mr.  Gage : 

"It  is  always  a  pleasure  to  take  up  one  of  Secretary  Gage's  ad- 
dresses or  reports.  His  name  is  the  synonym  of  sound  money,  as  he 
became  a  member  of  President  McKinley's  first  cabinet  at  a  time 
when  a  man  of  character  and  broadminded  opinions  on  currency  ques- 
tions was  needed  to  steady  the  popular  mind  and  afford  assurance 
that  the  stability  of  our  money  standard  would  be  a  foremost  object 
of  the  Administration's  policy.  Since  the  announcement  of  his  ap- 
pointment was  made,  a  sense  of  security  has  pervaded  financial  circles. 
And,  although  the  monetary  legislation  desired  was  deferred  longer 
than  had  been  anticipated,  the  continuance  of  Secretary  Gage  in  the 
Administration  was  accepted  as  a  belief  that  the  needed  laws  would 
be  passed,  as  in  due  time  they  were." 

After  the  death  of  President  McKinley,  Mr.  Roosevelt  reap- 
pointed Mr.  Gage  to  his  cabinet,  but  the  Secretary  of  the  Treasury 
offered  his  resignation  in  December,  1901. 

The  beginning  of  the  year  1902  showed  an  even  greater  develop- 
ment than  had  been  evidenced  in  1901.  In  fact,  tfie  volume  of  busi- 
ness transacted  exceeded  that  of  any  other  year  in  the  history  of  the 
country.  The  iron  and  steel  industries,  always  a  barometer  of  busi- 
ness conditions,  surpassed  their  highest  previous  totals  and  bank 
clearings  and  railroad  earnings  were  likewise  at  exceedingly  high 
levels. 

In  July  a  group,  presumed  to  have  been  connected  with  the  firm 
of  Harris,  Gates  and  Company,  took  advantage  of  a  short  supply  of 
corn  resulting  from  the  previous  season's  deficient  harvests,  and  cor- 
nered the  grain  on  the  Chicago  market.  On  the  eighth  the  price 
touched  ninety  cents,  almost  fifteen  cents  more  than  the  price  for 
wheat  on  the  same  market  and  twenty  and  one-half  cents  above  the 
price  for  corn  in  New  York  at  the  same  time.  This  situation  had 
the  effect  of  attracting  an  unexpectedly  large  supply  of  corn  to  Chi- 
cago; some  of  that  shipped  east  was  even  returned,  and  on  the  fifteenth 
the  price  suddenly  dropped  from  eighty-one  to  sixty-five  and  one- 
quarter  and  by  the  end  of  the  month  it  had  gone  as  low  as  fifty- 
five  cents. 


HISTORY  OF  BANKING  IN  ILLINOIS  ,       325 

In  November  there  occurred  a  serious  liquidation  on  the  New 
York  Stock  Exchange  which  was  probably  the  first  of  a  series  of 
declines,  each  resulting  in  a  lower  level  of  general  markets  and  con- 
tinuing throughout  the  year  1903.  That  year  marked  the  culmination 
of  the  long  period  of  prosperity  begun  in  the  triumph  of  sound  money 
back  in  1896.  The  first  decline  was  in  all  probability  the  direct  result 
of  a  siege  of  "trust  busting"  which  had  seized  the  country.  About 
this  time  unusual  efforts  were  being  made  to  break  up  the  Northern 
Securities  Company,  a  holding  company  organized  for  the  purpose 
of  taking  over  a  controlling  interest  in  the  stocks  of  the  Northern 
Pacific  and  the  Great  Northern  Railway  companies.  The  affairs  of 
this  company  Mere  taken  through  the  courts  in  an  effort  to  decide 
whether  or  not  the  combination  involved  a  violation  of  the  Sherman 
Anti-trust  Law  of  1890.  It  was  finally  decided  that  the  company  had 
violated  the  law  and  was  therefore  restrained  from  exercising  any 
rights  of  control  over  the  stock  of  the  two  railroads.  This,  however, 
did  not  end  the  controversy,  for  immediately  the  decision  was  widely 
criticized  on  the  ground  that  it  construed  the  Sherman  Law  in  such 
a  way  as  to  make  any  combination  of  competing  companies  illegal, 
irrespective  of  whether  or  not  that  combination  proved  to  be  harmful 
or  in  restraint  of  trade.  While  this  decision  was  not  reversed  in  the 
case  of  the  Northern  Securities  Company,  criticism  was  sufficiently 
convincing  to  modify  the  construction  of  the  law  in  later  decisions 
of  a  similar  nature. 

Since  this  controversy  involved  two  very  important  railroad  com- 
panies, so  depressing  an  effect  was  exercised  on  business  conditions 
as  to  all  but  bring  on  a  panic.  In  fact,  it  is  doubtful  if  the  threatened 
disaster  could  have  been  avoided  but  for  the  fact  that  great  private 
resources  were  assembled  and  a  consequent  degree  of  temporary  peace 
attained. 

The  year  1903  was  not  to  be  so  fortunate  in  avoiding  difficulties. 
In  that  year  "trust  busting"  became  so  extreme  that  business  every- 
where took  fright,  believing  itself  to  be  bullied  rather  than  soundly 
regulated,  and  great  failures  on  the  Stock  Exchange  resulted.  These 
eventually  brought  on  the  stock  market  panic  of  1904  known  as  the 
"silent  panic,"  which  was  unique  in  that  while,  as  a  result  of  a  large 
amount  of  speculation,  the  speculators  themselves  lost  heavily,  the 
subsequent  relapse  did  not  bring  on  a  general  panic  and  only  a  very 
few  failures  occurred  such  as  took  place  in  the  first  quarter  of  the 
year.     No  railroad  of  any  importance  went  into  a  receiver's  hands 

Vol.  I— 11 


326  FINANCING  AN  EMPIRE 

and  only  a  comparatively  few  individuals  failed,  in  spite  of  the  fact 
that  never  before  had  there  been  such  a  shrinkage  in  values  in  so 
short  a  time  on  good  properties.  The  remainder  of  the  year  1904 
definitely  left  off  the  downward  trend  started  in  1903  and  conditions 
started  to  improve.  They  soon  became  so  sound  fundamentally  that 
even  the  outbreak  of  hostilities  between  the  Russians  and  the 
Japanese,  which  began  in  February  and  continued  throughout  the 
year,  frequently  threatening  world-wide  complications,  together  with 
the  fact  that  1904  was  an  election  year — a  situation  which  never  has 
been  conducive  to  good  business — did  not  halt  the  steady  trend  to- 
ward prosperity. 

That  the  silver  controversy  had  been  settled  beyond  dispute  was 
made  plain  when  the  Democratic  Convention  at  St.  Louis  nominated 
Alton  B.  Parker  of  New  York  for  President,  and  Mr.  Parker  ac- 
cepted the  nomination  only  on  condition  it  be  understood  that  the 
party  definitely  pledge  itself  to  maintain  the  gold  standard. 

Possibly  as  a  result  of  the  worry  depressed  conditions  earlier  in 
the  year  had  produced,  there  was  developed  a  sprit  of  caution  which 
in  some  instances  amounted  to  suspicion.  Consequently,  on  occasions 
prominent  men  were  at  times  the  innocent  victims  of  false  accusa- 
tions. 

In  October,  1904,  the  president  of  the  National  Bank  of  North 
America,  a  strong,  downtown  institution  in  Chicago  which  had  been 
in  operation  for  the  previous  two  years,  was  accused  of  arson.  This 
accusation,  although  the  man  was  later  acquitted,  was  sufficiently 
serious  to  arouse  suspicion  as  to  the  standing  of  his  bank  and  quick 
action  had  to  be  taken  to  avoid  a  run. 

B.  A.  Eckhart,  then  vice-president  and  chairman  of  the  board 
of  directors,  immediately  approached  some  of  the  larger  banking 
institutions  of  the  city  to  effect  a  consolidation.  Before  the  news  of 
the  charge  brought  against  the  president  of  the  National  Bank  of 
North  America  had  become  public,  the  Continental  National  Bank 
of  Chicago  had  agreed  to  purchase  the  assets  of  the  National  Bank 
of  North  America  and  had  moved  its  effects  into  the  banking  rooms 
of  the  Continental  National  Bank. 

The  machinery  for  liquidation  was  set  into  operation  at  once  and 
Mas  so  effective  that  at  the  end  of  five  months  stockholders,  who  at 
the  time  of  the  consolidation  had  held  shares  quoted  at  $125  each, 
were  paid  $145.25,  and  the  total  cost  of  liquidation  had  been  but  one- 
fourth  of  one  per  cent.     Never  before  nor  since  has  there  occurred 


HISTORY  OF  BANKING  IX  ILLINOIS  327 

a  bank  liquidation  in  the  city  of  Chicago  which  has  been  completed 
in  so  short  a  time  or  at  so  small  an  expense.  Furthermore,  every- 
thing was  accomplished  in  such  a  satisfactory  way  that  the  Con- 
tinental National  Bank  held  almost  ninety-five  per  cent  of  the  de- 
positors of  the  liquidated  institution. 

During  these  years  Illinois  contributed  few  events  sufficiently  un- 
usual to  attract  the  attention  of  the  financial  interests  of  the  nation. 
Her  affairs  in  general  followed  those  of  the  country  as  a  whole,  and 
she  shared  in  the  general  prosperity  and  the  slight  collapse  of  1904 
along  with  other  states.  In  1905,  however,  attention  was  drawn  to 
Chicago  through  the  failure  of  three  prominent  banks  at  a  time  when 
conditions  as  a  whole  did  not  warrant  the  occurrence  of  financial 
disasters. 

Toward  the  middle  of  December,  Charles  H.  Bosworth,  the  na- 
tional bank  examiner,  who  had  made  arrangements  with  the  state 
banking  department  for  simultaneous  examinations  of  the  three  Chi- 
cago institutions  under  the  management  of  John  R.  Walsh  of  that 
city,  found  that  each  of  these  banks  had  made  unusually  large  loans 
to  a  number  of  interests  under  the  control  of  Mr.  Walsh.  This 
situation  appeared  to  be  sufficiently  serious  to  cause  Comptroller  of 
the  Currency  Ridgely  on  December  14  to  follow  the  course  sug- 
gested for  such  emergencies  by  the  Chicago  Clearing  House  in  its 
resolution  of  April  12,  1876,  so  he  informed  that  body  that  in  his 
estimation  the  Chicago  National  Bank  was  in  a  precarious  condi- 
tion. 

John  R.  Walsh,  president  of  the  bank,  was  identified  on  a  large 
scale  with  a  great  many  enterprises.  He  had  started  with  little  or 
nothing  and  raised  himself  to  a  point  where  he  was  one  of  Chicago's 
richest  and  most  respected  citizens.  In  addition  to  the  Chicago  Na- 
tional Bank  and  a  number  of  commercial  enterprises,  Mr.  Walsh 
also  controlled  the  Equitable  Trust  Company  and  the  Home  Savings 
Bank  of  Chicago. 

Of  these  three  institutions,  only  the  Chicago  National  Bank  came 
under  the  jurisdiction  of  the  Comptroller  of  the  Currency.  Mr. 
Ridgely  had  noticed  for  some  time  that,  while  the  bank  was  not  mak- 
ing strictly  illegal  loans,  it  nevertheless  was  permitting  an  unduly 
large  proportion  of  the  resources  to  go  into  interests  entirely  or 
chiefly  under  the  control  of  Walsh.  There  had  been  a  general  sus- 
picion that  Walsh  had  been  "kiting"  assets  from  one  bank  to  another, 
so  as  to  prevent  national  and  state  bank  examiners  from  finding  the 


328  FINANCING  AN  EMPIRE 

true  condition  of  any  one  of  the  three  banks,  and  this  suspicion  had 
become  so  strong  some  two  years  before  that  William  A.  Heath,  one 
of  the  state  bank  examiners,  had  taken  the  trouble  to  approach  the 
national  examiner,  Bosworth's  predecessor,  with  the  proposal  that 
they  arrange  to  conduct  a  simultaneous  examination  in  order  to 
reveal  any  unethical  practices.  This  proposal  was  met  with  opposi- 
tion, which  was  not  surprising  since  John  R.  Walsh  was  a  power  in 
the  Democratic  political  camps,  and  Fred  Blount,  one  of  his  bank 
officers,  was  at  the  same  time  powerful  in  Republican  circles.  Con- 
sequently, any  action  to  the  detriment  of  Mr.  Walsh  or  his  organiza- 
tion on  the  part  of  the  Comptroller  of  the  Currency  or  the  state 
banking  department  might  be  expected  to  produce  an  unpleasant 
reaction.  Especially  was  this  probable  since  neither  the  Comptroller 
of  the  Currency  nor  the  state  banking  department  had  any  tangible 
fact  upon  which  to  base  such  action.  Nevertheless,  arrangements 
were  made  to  check  the  assets  of  the  national  bank  against  a  list  of 
those  held  by  two  state  institutions,  but  as  this  check  showed  very 
definitely  that  there  had  been  no  illegal  transfer  of  securities  or  other 
assets,  the  matter  was  dropped  for  the  time  being. 

Suspicions  generally  were  roused  again  in  June,  1905.  This  time 
the  tables  were  turned  from  the  standpoints  of  the  state  and  national 
banking  departments.  Either  because  of  more  definite  information 
of  inside  conditions,  or  because  of  an  apprehension  of  the  conse- 
quences of  a  failure  to  heed  the  warnings — or  probably  on  both  ac- 
counts— Comptroller  Ridgely  approached  the  Illinois  state  banking 
authorities  with  a  proposition  not  far  different  from  the  one  they 
had  previously  made  him.  By  now  William  A.  Heath,  who  had  been 
state  bank  examiner  in  1903,  had  retired  in  order  to  assume  the  presi- 
dency of  one  of  the  prominent  banks  in  Chicago.  The  national  bank 
examiner  at  this  time  was  Charles  H.  Bos  worth  of  Chicago,  formerly 
connected  with  one  of  the  Walsh  organizations,  who  believed  that 
he  had  reason  to  know  that  a  thorough  investigation  was  necessary. 
It  was,  in  fact,  as  a  result  of  Mr.  Bosworth's  report  that  the  Comp- 
troller of  the  Currency  made  his  effort  to  secure  the  simultaneous 
examination  of  the  three  banks.  It  was  now  the  turn  of  the  state 
banking  department,  probably  for  political  reasons,  to  hesitate  to 
give  the  necessary  cooperation,  and  so  the  Comptroller  was  forced 
to  be  content  with  one  more  independent  examination.  After  its 
completion,  Mr.  Ridgely  was  more  than  ever  convinced  that  it  was 
absolutely  necessary  to  secure  a  simultaneous  investigation,  and  carry- 


HISTORY  OF  BANKING  IN  ILLINOIS  329 

ing  out  negotiations  with  the  state  banking  department  to  that  end, 
he  succeeded  in  securing  its  cooperation  on  December  9,  1905. 

While  this  joint  examination  disclosed  no  transfers  of  assets  from 
one  bank  to  another  for  the  purpose  of  deceiving  the  examiner,  no 
shortage  of  cash  and  securities,  or  manipulation  of  accounts,  it  did 
reveal  that  in  addition  to  the  large  loans  made  the  Walsh  interests 
by  the  national  bank,  the  other  two  had  made  loans  to  the  same  com- 
panies in  even  larger  proportion.  It  was  learned  that  the  total  esti- 
mated assets,  deposit  liabilities,  and  so-called  Walsh  securities  in  each 
of  the  three  institutions  were  as  follows: 

Estimated  Value  of  Total  Assets: 

Chicago  National  Bank $10,943,000 

Home  Savings  Bank   2,883,000 

Equitable  Trust  Company    3,384,000 


Total $23,210,000 

Estimated  Value  of  Total  Deposit  Liabilities: 

Chicago  National  Bank $18,223,000 

Home  Savings  Bank   4,295,000 

Equitable  Trust  Company 4,272,000 

Total $20,790,000 

Estimated  Value  of  Assets  in  So-called  Walsh  Securities: 

Chicago  National  Bank   $3,075,000 

Home  Savings  Bank   2,089,000 

Equitable  Trust  Company   1,039,000 

Total   $0,203,000 

Total  loans  of  the  three  institutions,  including  those  to  companies 
not  mainly  controlled  by  Walsh,  amounted  to  between  fifteen  and 
sixteen  million  dollars,  of  which  the  Home  Savings  Bank  held  some 
$3,830,000  and  the  Equitable  Trust  Company  $4,250,000. 

Although  there  seemed  to  be  little  doubt  that  Mr.  Walsh  could 
have  managed  the  amount  of  his  indebtedness  to  the  national  bank 
alone,  the  situation  was  rendered  critical  by  the  fact  that  practically 
all  the  funds  of  the  two  state  banks  had  likewise  been  loaned  to  his 
interests — either  directly  or  indirectly — so  that  in  the  event  of  any 
sudden  demand  made  upon  either  of  the  state  banks,  these  would  draw 


330  FINANCING  AN  EMPIRE 

upon  the  national  bank  for  funds.  At  the  time  of  the  examination 
the  trust  company  had  only  about  $.5, ,500  in  cash  and  the  Home 
Savings  Bank  approximately  $12,000.  Together,  these  two  had  on 
deposit  with  the  Chicago  National  Bank  some  $183,000. 

Just  as  soon  as  this  situation  was  brought  to  light,  the  state 
authorities  were  unwilling  that  the  two  state  banks  continue  in  busi- 
ness unless  something  were  done  at  once  to  strengthen  their  condi- 
tion. Since  to  close  the  state  banks  would  obviously  result  in  a  run 
on  the  Chicago  National  Bank,  the  Comptroller  of  the  Currency 
realized  that  something  must  also  be  done  by  him  immediately.  There- 
fore, after  a  conference  with  the  bank  examiner,  he  gave  instructions 
on  December  14,  1905,  that  no  action  be  taken  until  after  the  close 
of  business  at  noon  the  following  Saturday,  when  the  time  locks  had 
been  set  on  the  vaults  so  that  they  could  not  be  opened  before  Monday. 
Also,  he  instructed  the  examiner  to  call  a  meeting  of  the  Clearing 
House  Association  at  that  time  for  the  purpose  of  advising  that  or- 
ganization of  the  state  of  affairs  of  the  Chicago  National  Bank. 
Meanwhile,  the  Comptroller,  Mr.  Ridgely,  left  Washington,  reach- 
ing Chicago  on  Sunday,  December  17,  so  that  he  might  attend  to 
affairs  in  person  and  arrange  a  conference  with  Mr.  Walsh  and  the 
directors  of  his  bank,  together  with  the  attorneys  for  the  Clearing 
House  Association,  and  the  national  and  state  bank  examiners. 

This  conference  started  at  ten  o'clock  on  Sunday  morning,  De- 
cember 17,  1905,  and  did  not  break  up  until  seven  o'clock  the  follow- 
ing morning.  The  Comptroller  insisted  that  he  would  not  permit  the 
Chicago  National  Bank  to  open  on  Monday  unless  some  satisfactory 
arrangement  could  be  perfected  which  would  insure  full  payment  of 
all  demands  that  might  be  made  by  creditors.  To  see  what  was  pos- 
sible in  this  regard,  the  membership  of  the  Chicago  Clearing  House 
Association  was  called  into  the  conference  at  two-thirty  o'clock  on 
Monday  morning.  These  bankers,  who  had  been  kept  in  a  state  of 
great  anxiety  since  Saturday  afternoon,  hurried  to  the  meeting  place 
and  when  they  were  assembled  it  was  seen  that  every  member  bank 
but  one  was  represented  and  likewise  most  of  the  affiliated  banks. 
The  whole  situation  was  laid  before  these  men.  They  were  shown 
that  among  the  assets  of  the  Chicago  National  Bank  there  were  ten 
memorandum  notes  of  ninety-two  thousand  dollars  each,  totaling 
$920,000,  against  which  was  held  as  collateral  one  million  dollars,  face 
value,  of  Wisconsin-Michigan  Railway  bonds.  These  bonds  were 
only  a  second  mortgage  on  a  road  controlled  by  Mr.  Walsh  and  later 


HISTORY  OF  BANKING  IN  ILLINOIS  331 

events  showed  that  as  collateral  they  were  worthless.  In  fact,  even 
the  first  mortgage  bonds  of  this  same  road,  which  were  held  among 
the  assets  of  the  three  banks,  were  later  disposed  of  at  about  twenty- 
three  cents  on  the  dollar. 

Furthermore,  there  were  nineteen  notes,  also  for  ninety-two 
thousand  dollars  each,  amounting  in  all  to  $1,748,000,  against  which 
as  collateral  there  were  held  $1,900,000  in  Illinois  Southern  Railway 
bonds. 

These  memorandum  notes  did  not,  on  the  face  of  them,  even  pre- 
tend to  be  the  obligations  of  bona  fide  borrowers.  Although  the  sig- 
natures were  in  different  names,  they  were  all  in  one  handwriting  and 
there  was  written  plainly  across  their  face  in  red  ink  the  words 
"Memorandum  Note."  It  seems  that  nowhere  in  these  transactions 
had  Mr.  Walsh  meant  to  deceive  anybody.  He  seems  rather  to  have 
been  over-confident  of  his  own  ability  to  make  money  and  had 
planned  that,  by  promoting  his  interests  with  the  money  of  the  banks, 
nobody  would  be  harmed  and  he  would  soon  become  exceedingly 
wealthy. 

As  a  result  of  this  meeting  and  the  demands  made  by  the  Comp- 
troller of  the  Currency,  an  agreement  in  writing  was  made  between 
the  bank  and  the  Clearing  House  Association — which  then  repre- 
sented thirty-four  banks  in  Chicago — whereby  the  Clearing  House 
banks  were  to  purchase  all  the  assets,  except  the  cash  and  exchange 
items,  of  the  three  Walsh  banks,  namely,  the  Chicago  National  Bank, 
the  Home  Savings  Bank,  and  the  Equitable  Trust  Company,  and 
obtain  partial  security  through  the  guarantee  of  the  directors. 

Mr.  Frederick  H.  Rawson,  President  of  the  Union  Trust  Com- 
pany, was  among  a  group  of  prominent  bankers  and  business  men 
who  were  called  into  the  conference  at  about  two  o'clock  on  Sunday 
afternoon.  These  men  continued  in  session  until  early  the  following 
morning  and  it  was  decided  among  them  that,  since  the  clearing  house 
banks  of  the  city  would  take  over  the  assets  of  the  three  Walsh  in- 
stitutions, press  notices  must  be  handled  with  great  tact  to  avoid  any 
unnecessary  disturbance.  Consequently  it  was  agreed  that  certain 
men  present  give  the  news — carefully  prepared — to  each  of  the 
parsers.  These  men,  however,  were  so  slow  about  deciding  just  how 
they  would  say  what  the}''  had  to  offer  that  Mr.  Rawson  grew  nervous. 
The  meeting  was  being  held  on  the  third  floor  of  the  First  National 
Bank  Building  and  it  could  be  seen  that  across  the  street  the  morning 
Tribune  was  already  leaving  the  presses. 


332  FINANCING  AN  EMPIRE 

Therefore,  Mr.  Rawson  approached  James  B.  Forgan  and  called 
his  attention  to  things  going  on  at  the  newspaper  office.  Immediately 
Mr.  Forgan  assigned  the  Tribune  to  Mr.  Rawson  who  ran  across  the 
street  without  even  stopping  for  his  hat.  It  was  then  about  three 
o'clock  in  the  morning  and  as  Mr.  Rawson  entered  the  Tribune  door- 
way, he  met  its  editor,  James  Keeley,  leaving  for  the  night.  Assum- 
ing that  Mr.  Rawson  had  been  out  to  a  gay  party,  Mr.  Keeley  at- 
tempted to  calm  him  and  get  him  started  home,  but  he  soon  learned 
that  the  banker  was  there  with  an  important  news  story.  The  two 
men  repaired  to  the  editor's  office,  but  before  the  banker  had  time 
to  say  more  than  that  the  three  Walsh  banks  would  not  open  that 
morning,  Mr.  Keeley  dashed  out  of  the  room  and  fairly  fell  down  the 
three  flights  of  stairs  to  the  presses.  Mr.  Rawson  followed  as  fast 
as  he  could  and  when  he  reached  the  basement  he  found  the  editor 
already  there  and  mounted  on  a  bridge  above  the  machines,  madly 
calling  to  his  chief  pressman  to  stop  those  presses.  "Burn  every 
paper,"  he  shouted,  "we  shall  have  a  new  edition."  Then  he  hurried 
about  sending  messengers  here  and  there  to  roust  out  the  typesetters 
who  had  already  left  for  the  night.  The  editor  himself  hurried  to 
the  composing  room  and  personally  directed  the  re-making  of  the 
front  page  of  the  Tribune  from  copy  whioh  he  had  scrawled  in  an 
enormous  hand  with  a  big  black  pencil  as  Mr.  Rawson  told  the  story. 
In  a  short  time  after  Mr.  Rawson  left  the  Tribune  office  a  new  front 
page  had  been  made  carrying  large  headings  and  about  a  half  column 
of  text  on  the  Walsh  failure.  Thus  was  conveyed  to  the  people  of 
Chicago  the  first  inkling  of  any  difficulty  with  John  R.  Walsh 
whom  many  regarded  as  a  bulwark  of  financial  strength.  Even  some 
of  the  bankers,  it  is  said,  were  stunned  by  this  failure. 

It  is  quite  probable  that  the  clearing  house  banks  in  taking  over 
these  assets  saved  the  financial  situation  and  protected  themselves 
against  disastrous  runs  on  their  own  institutions.  As  a  matter  of 
fact  the  ultimate  result  was  the  distribution  of  a  loss  of  $3,698,201 
among  the  members  of  the  Chicago  Clearing  House  Association  and 
its  affiliated  banks.  This  is  plainly  shown  in  the  statement  of  James 
B.  Forgan,  head  of  the  First  Trust  and  Savings  Bank  of  Chicago 
which  was  appointed  agent  to  receive  and  liquidate  these  assets  under 
the  direction  of  the  clearing  house  committee.  In  an  address  which 
he  made  before  the  Bankers'  Club  at  Detroit  on  December  7,  1912, 
Mr.  Forgan  said  in  part: 

"Business  conditions  were  strained  and  the  time  was,  therefore, 


HISTORY  OF  BANKING  IN  ILLINOIS  333 

particularly  unfavorable  for  permitting  the  failure  of  three  prom- 
inent banks.  The  effects  of  such  a  calamity,  it  was  feared,  would 
have  extended  far  beyond  the  confines  of  Chicago. 

"With  but  a  superficial  statement  from  the  president  of  the 
condition  of  his  various  ventures,  some  of  which  were  in  course  of 
construction,  and  with  only  a  vague  knowledge  of  the  realizable  value 
of  their  obligations,  the  clearing  house  committee  hurriedly  made  a 
tentative  estimate  of  the  realizable  value  of  the  assets  of  the  three 
banks  and  of  the  deficiency  in  them  to  meet  their  deposit  liabilities. 
These  estimates  have  since  proved  remarkably  near  the  final  out- 
come. To  prevent  a  panic  the  remaining  Chicago  banks,  facing  an 
inevitable  heavy  loss,  assumed  the  deposit  liabilities  of  the  three 
banks  and  took  over  their  assets  under  a  limited  guaranty  of  the 
directors.  This  action,  besides  providing  for  payment  to  the  depos- 
itors in  full,  relieved  the  bondsmen  of  their  responsibility  for  the 
$8,200,000  of  public  funds  in  the  bank  and  the  shareholders  of  their 
double  liability  on  their  stock.  These  three  classes  of  vitally  inter- 
ested individuals  will  probably  never  fully  appreciate  what  the  action 
of  the  associated  banks  meant  for  them.  Subsequent  developments 
have  shown  that  liquidation  of  the  assets  of  the  three  banks,  plus 
the  double  liability  of  their  shareholders,  had  it  been  collected,  would 
have  been  insufficient  to  pay  their  deposit  liabilities. 

"The  situation  was  thus  protected  from  a  general  disturbance  of 
public  confidence,  but  it  was  done  at  the  cost  of  a  very  heavy  loss, 
foreseen  at  the  time  and  since  realized  by  the  participating  banks." 

It  was  agreed  that  the  Chicago  Clearing  House  Association 
would  undertake  the  payment  of  all  demands  of  depositors,  includ- 
ing the  public  treasury,  more  funds  from  which  were  held  in  the 
three  Walsh  banks  than  in  all  others  in  the  city  combined,  and  conse- 
quently the  newspapers  of  the  city  were  given  a  large  display  adver- 
tisement which  read: 

TO  THE  PUBLIC 

Depositors  of  the  Chicago  National 
Bank,  Home  Savings  Bank,  and  Equi- 
table Trust  Company  are  respectfully  ad- 
vised that  their  deposits  will  be  paid  in 
full  upon  demand. 

Clearing  House  Committee  or  the 
Chicago  Associated  Banks 


334  FINANCING  AN  EMPIRE 

When  the  hunks  opened  on  Monday  morning,  December  18,  since 
the  papers  had  already  carried  the  news  of  Walsh's  failure,  for  a 
short  time  there  were  indications  that  a  panic  might  result.  How- 
ever, the  prompt  action  of  the  Clearing  House  Association,  through 
which  no  depositor  was  denied  the  full  amount  of  his  deposits  with 
any  of  the  three  banks,  promptly  restored  confidence  and  prevented 
a  run  on  other  banks  such  as  doubtless  would  have  otherwise  occurred. 
On  the  first  day  depositors  drew  over  two  and  three-quarter  million 
dollars  from  the  three  institutions,  but  confidence  had  so  far  been 
restored  on  the  second  day  that  with  the  exception  of  a  half  million 
withdrawn  from  the  Home  Savings  Bank,  chiefly  by  working  people 
who  carried  small  accounts  there,  withdrawals  from  the  three  insti- 
tutions consisted  largely  in  checks  which  passed  through  the  clearing 
house.     In  all,  these  amounted  to  about  five  million  dollars. 

It  is  interesting  to  note  that  the  eight  million  dollars  of  public 
deposits  in  all  the  Walsh  banks  represented  at  least  four  million 
more  than  was  held  by  any  other  Chicago  banking  institution.  This 
may  have  been  due  in  part  to  the  great  political  influence  of  John 
R.  Walsh  in  the  community,  but  was  doubtless  also  due  to  some  ex- 
tent to  the  great  respect  in  which  he  was  held  everywhere  because  of 
his  constructive  influence  in  creating  and  developing  large  commer- 
cial and  semi-public  corporations.  A  partial  list  of  those  in  which 
he  is  credited  with  having  an  interest  includes:  The  Akron  Gas 
Company,  Audit  Company  of  Illinois,  Bedford  Quarries  Company, 
Chicago  Auditorium  Association,  Chicago  Safe  Deposit  Company, 
Illinois  Southern  Railway  Company,  North  Shore  Electric  Com- 
pany, Northwestern  Gas  Light  and  Coke  Company,  Ogden  Gas 
Company,  Southern  Indiana  Railway  Company,  Southern  Indiana 
Express  Company,  Rand  McNally  and  Company,  Wisconsin-Mich- 
igan Railway  Company,  Chicago  Southern  Railway  Company,  Chi- 
cago Wharfing  and  Storage  Company,  Bedford  Belt  Railway  Com- 
pany, Indiana  Southern  Coal  Company,  Southern  Indiana  Coal 
Company  (these  last  two  were  subsequently  merged  to  form  the  Al- 
liance Coal  Company),  Cicero  Gas  Company,  Peoria  Gas  and  Elec- 
tric Company,  Mount  Olive  and  Stanton  Coal  Company,  Chicago 
Ball  Club,  Evanston  Heating  Company,  Ohio  Quarries  Company, 
Litchfield  and  Madison  Railway  Company,  and  Eastern  Illinois 
Coal  Company. 

Mr.  Walsh  was  a  director  in  a  large  number  of  these  organizations 
and  served  several  of  the  corporations  as  president.     Among  the  hit- 


li'rom  Andreas'  History  of  Chicagoi 


JOHX  E.  WALSH'S  FIRST  PLACE  OF  BUSINESS  IX  CHICAGO 


HISTORY  OF  BANKING  IN  ILLINOIS  ,      337 

ter  were  the  Akron  Gas  Company,  Bedford  Quarries  Company,  and 
the  Southern  Indiana  Railway  Company.  He  was  a  vice-president 
of  the  Northwestern  Gas,  Light  and  Coke  Company. 

That  these  companies  were  founded  on  a  firm  and  stable  basis 
and  were  real  contributions  to  their  communities,  is  indicated  by  the 
large  number  of  them  still  in  existence.  Some,  which  have  not  con- 
tinued their  independent  existence,  have  been  absorbed  by  larger 
companies.  Such  has  been  the  case  with  the  Ogden  Gas  Company, 
which  in  1907  was  bought  by  the  Peoples'  Gas,  Light  and  Coke  Com- 
pany of  Chicago;  the  Northwestern  Gas,  Light  and  Coke  Company; 
North  Shore  Gas  Company,  and  Cicero  Gas  Company,  all  of  which 
have  been  taken  over  by  the  Public  Service  Company  of  Northern 
Illinois;  and  the  Peoria  Gas  and  Electric  Company,  which  became  a 
part  of  the  Commonwealth  Power,  Railway  and  Light  Company. 

In  addition  to  his  banking,  industrial,  and  public  service  opera- 
tions, Mr.  Walsh  was  a  prominent  factor  in  newspaper  circles  in 
Chicago.  It  was  through  his  efforts  and  financial  backing  that  a 
number  of  the  more  prominent  and  respected  journals  of  the  city 
were  established.  He  was  the  financial  backer  and  principal  founder 
of  the  Chicago  Herald  and  owned  the  Herald  Building.  In  1890 
he  founded  the  Chicago  Evening  Post  and  secured  John  W.  Scott, 
a  very  capable  newspaper  man,  to  act  as  publisher  of  both  papers. 
In  1895  Mr.  Scott  brought  about  a  consolidation  of  the  Chicago 
Times — a  Democratic  paper  owned  by  the  estate  of  Carter  Harri- 
son, World's  Fair  Mayor  of  Chicago — and  the  Herald,  under  the 
name  of  the  Times-Herald.  Within  a  few  weeks  Mr.  Scott,  who 
controlled  the  newspaper,  died,  and  his  estate  sold  both  the  Times- 
Herald  and  the  Chicago  Evening  Post  to  Herman  H.  Kohlsaat  of 
Chicago,  Mr.  Walsh  retaining  ownership  of  the  Herald  Building 
at  160  West  Washington  Street. 

Mr.  Walsh  had  always  been  an  ardent  Democrat.  His  convic- 
tions were  plainly  evidenced  in  the  Times-Herald  which  admitted 
itself  to  be  a  partisan  paper,  and  they  were  somewhat  less  pronounced, 
but  nevertheless  present,  in  the  Chicago  Evening  Post  which  at- 
tempted to  be  strictly  non-partisan.  Mr.  Kohlsaat,  on  the  other 
hand,  was  as  strongly  Republican  as  Mr.  Walsh  had  been  Demo- 
cratic. As  soon  as  Mr.  Kohlsaat  acquired  the  two  newspapers,  the 
policy  of  the  Times-Herald  was  immediately  shifted  from  Demo- 
cratic to  Republican,  while  the  Chicago  Evening  Post  continued 
indifferent  but  with  Republican  rather  than  Democratic  leanings  in 


338  FINANCING  AN  EMPIRE 

its  attitude.  This  situation,  naturally,  was  not  especially  to  Mr. 
Walsh's  liking,  as  it  left  the  city  without  an  adequate  medium  for 
Democratic  political  propaganda.  Therefore,  in  order  to  give  Chi- 
cago a  Democratic  morning  paper,  he  founded  the  Chicago  Chron- 
icle, and  installed  as  editors  Martin  J.  Russell  and  Horatio  Sey- 
mour, his  former  lieutenants  on  the  Chicago  Herald. 

The  Chronicle  quickly  took  the  place  among  Chicago  newspapers 
that  Mr.  Walsh  had  hoped  for  it.  It  became  one  of  his  favorite  enter- 
prises, so  much  so,  in  fact,  that  when  his  banks  failed  and  he  faced 
a  term  in  prison  as  a  result,  he  preferred  to  forego  the  financial  ben- 
efits from  a  sale  rather  than  sell  his  paper  to  the  Hearst  interests. 
Instead,  he  simply  ceased  publication  and  forfeited  the  Associated 
Press  franchise. 

It  is  to  be  expected  that  a  man  who  had  made  so  many  contribu- 
tions to  the  economic  development  of  his  community  would  retain 
a  large  number  of  friends,  even  after  his  operations  had  resulted  in 
the  downfall  of  three  prominent  banks  and  the  destruction  of  a  num- 
ber of  private  fortunes,  and  Walsh  did  have  such  friends  in  abun- 
dant number.  Newspaper  articles  denouncing  his  villainy  were  run 
side  by  side  with  columns  singing  his  high  praises.  Time  and  again 
the  charge  was  made  that  the  downfall  of  the  Walsh  banks  had  been 
due  to  outside  jealousies  on  the  part  of  less  successful  competitors 
rather  than  to  bad  banking  within.  Investigation,  however,  has 
shown  that  there  was  little  foundation  for  these  unkind  charges  made 
against  competing  business  men.  Walsh's  failure  seems  rather  to 
have  been  due  to  over-reaching. 

On  Tuesday,  December  19,  the  second  day  on  which  the  Walsh 
banks  had  been  in  the  hands  of  the  Clearing  House  Association,  the 
Chicago  Tribune  summed  up  the  situation  in  one  of  McCutcheon's 
cartoons,  displaying  the  banks  of  Chicago  firmly  intrenched  on  the 
Rock  of  Gibraltar  and  near  them  a  sign  which  read:  "Deposits  will 
be  paid  at  any  time  between  ten  and  three.  All  we  ask  is  time  to 
count  the  money." 

Thus,  because  of  the  wise  course  followed  by  Comptroller  Ridge- 
ly  and  the  Chicago  Clearing  House  Association,  the  failure  of  three 
important  banks  in  Chicago  created  scarcely  a  ripple  in  the  economic 
life  of  the  city.  Every  creditor  of  these  three  institutions  was  paid 
in  full,  promptly  and  without  serious  consequences  or  embarrass- 
ments. Nevertheless,  Mr.  Ridgely  was  severely  criticized,  first,  for 
having  permitted  the  Walsh  situation  to  continue  for  so  long  before 


HISTORY  OF  BANKING  IN  ILLINOIS  339 

corrective  measures  were  taken,  and  next,  because  it  was  believed  by 
some  that  his  action  in  permitting  the  clearing  house  banks  to  enter 
into  an  agreement  with  Mr.  Walsh  and  the  directors  of  his  bank  was 
not  legal.  As  to  the  first  criticism,  it  will  be  recalled  that  as  soon 
as  these  excessive  loans  became  known,  the  Comptroller  did  even- 
thing  in  his  power,  not  only  to  have  them  reduced,  but  also  to  make 
sure  that  they  really  did  exceed  the  legal  limit.  In  this  regard  one 
must  take  into  consideration  the  limitations  which  the  National  Bank- 
ing Act  placed  on  the  supervision  of  the  government.  It  did  not  con- 
sider as  bad,  an  obligation  due  a  bank  until  interest  had  been  past 
due  for  six  months,  and  not  even  then  if  such  interest  could  be  se- 
cured at  that  time  or  was  in  the  process  of  collection.  Also,  no  mat- 
ter how  certain  the  Comptroller  might  feel  that  a  bank  was  insolvent 
he  was  hampered  in  appointing  a  receiver  by  the  legal  definition  of 
insolvency — the  "inability  to  pay  current  debts  as  they  mature."  He 
was  still  further  hindered  in  action  by  the  fact  that  the  report  of  a 
national  bank  may  be  ever  so  erroneous  as  to  actual  values,  provided 
only  that  it  be  in  accordance  with  the  bank's  books.  So,  even  though 
the  Comptroller  received  five  reports  a  year  from  a  bank,  if  its  books 
were  kejrt  dishonestly  but  the  report  agreed  with  them,  he  was  help- 
less to  do  anything  about  it. 

As  to  the  criticism  that  Mr.  Ridgely  had  acted  illegally  in  per- 
mitting the  agreement  made  with  Mr.  Walsh  and  his  directors  by 
the  clearing  house  banks,  it  will  be  remembered  that,  since  the  situa- 
tion was  critical  and  involved  not  only  the  financial  safety  of  the 
other  banking  institutions  in  Chicago  but  those  of  the  whole  nation 
as  well,  quick  action  was  imperative.  Consequently,  the  Comptroller 
was  probably  justified  in  his  belief  that  the  national  banks  of  Chicago 
had  a  legal  right  to  purchase  their  pro  rata  share  of  the  assets  of  the 
failed  institutions.  The  only  possible  legal  question  to  be  raised,  as 
Mr.  Ridgely  saw  it,  was  the  chance  that  the  pro  rata  share  in  some 
instances  might  exceed  the  legal  limit  for  the  size  of  a  loan.  In  view 
of  the  gravity  of  the  situation,  however,  this  question  did  not  appeal 
either  to  the  Comptroller  or  to  the  banks  in  question  as  one  to  be  re- 
garded too  strictly.  All  in  all,  Mr.  Ridgely  seems  to  have  pursued 
the  wisest  possible  course  available,  and  it  is  the  opinion  of  many  that 
under  the  circumstances  he  could  not  have  done  better  and  that  Illi- 
nois should  have  been  proud  to  own  him  as  her  contribution  to  the 
Comptroller's  office. 

John  R.  Walsh  was  indicted  for  misapplication  of  funds  of  the 


340  FINANCING  AN  EMPIRE 

national  bank  and  other  violations  of  the  law.  He  went  on  trial  in 
November,  1907,  and  was  found  guilty  on  January  19,  1908.  For 
nearly  two  years  thereafter  he  struggled  to  have  the  verdict  set  aside. 
He  made  appeal  to  a  higher  court  and  then  to  the  Supreme  Court 
of  the  United  States,  but  all  without  the  desired  result,  and  he  was 
sentenced  to  serve  a  term  of  five  years  in  Leavenworth.  Mr.  Walsh 
entered  upon  his  term  of  imprisonment  in  January,  1910,  but  after 
about  a  year  and  nine  months  he  was  paroled  because  of  failing  health 
and  died  in  Chicago  on  October  23,  1911,  just  nine  days  after  his 
release.  At  the  time  of  his  death  Mr.  Walsh  was  seventy-four 
years  old. 

For  almost  two  )Tears  after  the  failure,  the  First  Trust  and  Sav- 
ings Bank  continued  to  act  as  agent  for  the  clearing  house  banks, 
in  accordance  with  the  appointment  made  at  the  time  of  the  catas- 
trophe. Then  it  was  found  to  the  advantage  of  the  association  to 
sell  to  John  R.  Walsh  and  Company  certain  of  the  securities  in 
order  to  facilitate  their  liquidation,  and  in  return  to  accept  the  prom- 
issory note  of  that  company  secured  by  the  assets  purchased  and 
guaranteed  by  the  directors  of  the  Chicago  National  Bank.  All 
remaining  assets  were  retained  by  the  associated  banks,  and  con- 
tinued to  be  administered  by  the  First  Trust  and  Savings  Bank. 
The  banks  were  given  participation  certificates  representing  their 
pro  rata  share  of  these  assets.  The  certificates  were  issued  in  two 
series,  one  representing  the  interest  in  the  assets  covered  by  the  prom- 
issory note  of  John  R.  Walsh  and  Company  and  the  other  the  inter- 
est in  other  assets.  Until  1910  affairs  remained  in  this  condition, 
and  then  a  ten  per  cent  dividend  was  declared  on  both  series  and  a 
settlement  arranged  with  John  R.  Walsh  and  Company,  whereby 
the  assets  purchased  in  1907  were  recovered  by  the  banks  and  the 
note  cancelled.  This  settlement  included  the  release  of  the  directors 
of  the  Chicago  National  Bank  from  their  individual  guarantee,  pro- 
vided they  transfer  certain  of  their  personal  assets  to  the  First  Trust 
and  Savings  Bank  as  trustee  for  the  benefit  of  the  associated  banks. 
At  this  point  the  participation  certificates  were  called  in  and  a  new 
series  issued  bearing  the  date  February  1,  1910.  These  aggregated 
about  nine  million  dollars  and  represented  the  remaining  interest  of 
the  clearing  house  banks  in  the  Chicago  National  Bank. 

In  connection  with  this  failure  it  is  interesting  to  note  the  great 
part  Illinois  had  played  in  the  administration  of  the  Comptroller's 
office.     At  the  meeting  of  December  17,  1905,  which  closed  the  af- 


Edward  S.  Lacey 


Charles  G.  Dawes 


James  H.  Eckels 


William  B.  Ridgely 


COMPTROLLERS 


HISTORY  OF  BANKING  IN  ILLINOIS  343 

fairs  of  the  Walsh  banks  as  such,  there  Mere  present  three  ex-Comp- 
trollers, Messrs.  E.  S.  Lacey,  J.  H.  Eckels,  and  C.  G.  Dawes,  each 
of  whom  was  then  a  president  of  a  banking  institution  in  Chicago — 
Mr.  Lacey  of  the  Bankers  National  Bank,  Mr.  Eckels  of  the  Com- 
mercial National  Bank,  and  Mr.  Dawes  of  the  Central  Trust  Com- 
pany. Mr.  Ridgely,  under  whom  the  investigation  was  made,  was 
also  an  Illinois  man,  born  in  Springfield,  where  he  served  as  post- 
master for  some  time  and  then  went  to  Chicago  as  secretary  and  vice- 
president  of  the  Republic  Iron  and  Steel  Company. 

Since  the  Walsh  failure  was  one  of  the  very  few  of  any  conse- 
quence in  the  entire  country,  the  year  190.5  as  a  whole  was  one  of 
sustained  prosperity  with  business  activity  a  dominant  feature 
throughout.  The  confidence  established  in  1904  after  the  success- 
ful termination  of  the  difficulties  of  1903,  continued  to  develop  until 
trade  and  business  in  190a  were  larger  than  ever  before  in  the  his- 
tory of  the  country. 

Even  labor  troubles  were  noticeably  lacking.  Practically  the 
only  strike  of  any  proportions  occurring  in  the  country  was  that  of 
the  teamsters  in  Chicago.  This  began  on  April  7  and  lasted  until 
some  time  in  July.  These  weeks  witnessed  many  scenes  of  great 
disorder  and  rioting  but,  as  a  final  outcome,  the  men  were  forced  to 
abandon  their  stand  without  gaining  anything. 

The  stock  market  buoyancy,  begun  in  1904,  continued  and  de- 
veloped until  there  was  reached  a  state  of  unrestrained  optimism  with 
a  resulting  enormous  volume  of  business  and  price  advances  which 
in  many  instances  were  greater  than  ever  before. 

This  same  prosperity  and  optimism  continued  in  1906  and,  like 
1905,  that  year  also  was  sufficiently  prosperous  to  ignore  any  unfa- 
vorable developments.  Even  the  San  Francisco  earthquake  and 
fire  of  April  18,  which  destroyed  some  twenty-five  thousand  build- 
ings including  most  of  the  banking  offices,  and  resulted  in  a  total 
property  loss  of  three  hundred  and  fifty  million  dollars  which  be- 
cause of  insurance  payments  was  spread  throughout  the  country, 
failed  to  bring  about  anything  like  the  financial  catastrophe  that 
such  a  loss  might  lead  one  to  expect.  However,  it  came  at  a  time 
when  money  was  already  rather  tight  and,  consequently,  the  Secre- 
tary of  the  Treasury  found  it  necessary  to  take  immediate  steps  for 
the  importation  of  additional  gold.  Also,  he  permitted  the  banks 
to  count  money  in  transit  as  reserve  and  he  put  forth  additional  gov- 


344  FINANCING  AN  EMPIRE 

ernment  deposits  of  bonds  as  security  to  the  importing  institutions 
against  gold  shipments. 

In  spite  of  the  general  prosperity  which  existed,  a  strong  feel- 
ing against  the  capitalist  class  was  growing,  which  continued  to  de- 
velop and  be  a  disturbing  influence  for  some  years  thereafter  and 
was  later  the  cause  of  many  strikes  and  various  other  kinds  of  labor 
troubles.  I 

On  June  22,  1906,  the  National  Bank  Law  was  amended  so  that 
instead  of  permitting  banks  to  make  no  loans  larger  than  ten  per  cent 
of  their  capital,  they  were  henceforth  to  be  permitted  to  make  any 
one  loan  equal  to  ten  per  cent  of  capital  and  surplus  combined,  pro- 
vided only  that  this  should  not  exceed  thirty  per  cent  of  the  capital 
alone. 

On  August  6  the  Milwaukee  Avenue  State  Bank,  one  of  the 
outlying  institutions  in  Chicago,  closed  its  doors  because  of  fraudu- 
lent management,  with  a  deficit  in  its  accounts  amounting  to  between 
seven  hundred  thousand  and  one  million  dollars.  Theodore  Stens- 
land,  Vice-President,  and  Henry  W.  Hering,  Cashier,  were  ar- 
rested— Stensland  charged  with  violation  of  the  state  banking  laws, 
and  Hering  with  embezzlement.  At  the  same  time  a  warrant  was 
issued  for  Paul  O.  Stensland,  the  president,  who  was  absent,  also 
on  a  charge  of  violating  the  state  banking  laws.  This  bank,  organ- 
ized in  1891,  had  a  capital  stock  of  two  hundred  and  fifty  thousand 
dollars,  surplus  and  undivided  profits  of  approximately  three  hun- 
dred thousand,  with  a  deposit  liability  amounting  to  more  than  four 
million. 

In  Illinois  the  developments  of  the  financial  world  produced  a 
landmark  in  the  form  of  a  convention  of  insurance  commissioners 
held  in  Chicago  in  February.  At  this  meeting  much  attention  was 
given  to  recent  investigations,  chiefly  in  New  York,  under  which 
numerous  bad  practices  were  disclosed,  and  one  especially  which 
grew  out  of  the  increasing  custom  on  the  part  of  the 
companies  hoarding  dividends  and  using  them  for  semi-specu- 
lative investment,  instead  of  paying  annual  dividends  on  pre- 
miums. As  a  consequence,  an  effort  was  made  to  put  these  compa- 
nies under  federal  jurisdiction  and  the  convention  at  Chicago  pre- 
pared a  bill  to  be  submitted  to  Congress  for  that  purpose. 

By  October,  the  combination  of  business  prosperity  and  specula- 
tion, together  with  the  San  Francisco  disaster,  had  created  so  great 
a  drain  on  the  gold  supply  of  foreign  countries  through  American 


HISTORY  OF  BANKING  IN  ILLINOIS  345 

imports  that  all  European  money  markets  were  disturbed.  Eng- 
land had  made  enormous  shipments  of  gold  to  the  United  States  se- 
cured by  finance  bills,  and  when  the  situation  became  acute  the  Bank 
of  England  began  advancing  its  rate.  On  October  11,  it  was  in- 
creased from  four  per  cent  to  five  per  cent  and  on  the  nineteenth 
was  raised  to  six  per  cent.  Only  three  times  before  in  the  preceding 
twenty  years  had  this  rate  gone  so  high.  Also,  the  Bank  of  Eng- 
land intimated  to  the  London  financial  world  that  the  acceptance  of 
American  finance  bills  was  a  menace  to  the  stability  of  the  London 
market  and  that  the  Bank  would  throw  the  full  weight  of  its  power 
and  influence  against  the  acceptance  of  such  bills.  That  definitely 
ended  all  negotiations  with  finance  bills  between  the  United  States 
and  England,  and  when  such  paper  matured  payment  was  exacted, 
except  where  previous  arrangement  for  a  single  renewal  had  been 
provided.  For  some  time  after  December,  1906,  the  liquidation  of 
these  bills  was  the  most  potent  single  factor  in  the  financial  situa- 
tion of  the  country.  So  long  as  these  loans  could  be  transferred  to 
the  banks  of  New  York  no  great  difficulty  ensued.  Toward  the  end 
of  February,  however,  the  banks  had  so  contracted  their  loans  and 
the  process  of  liquidation  had  gone  so  far  as  to  result  in  the  first  evi- 
dences of  the  "rich  man's  panic"  of  1907. 

The  Secretary  of  the  Treasury  had  attempted  to  meet  the  situa- 
tion by  permitting  banks  having  government  deposits  secured  by 
government  bonds  to  substitute  municipal  bonds  therefor,  on  condi- 
tion that  they  would  use  the  United  States  bonds  so  released  as 
security  against  additional  note  issues.  In  this  way  the  situation 
was  relieved  for  a  time,  but  fundamentally,  conditions  were  now  ripe 
for  the  panic  which  was  so  soon  to  occur. 


CHAPTER  XVIII 
THE  PANIC  OF  1907 

Conditions  leading  to  a  state  of  panic — The  banks  in  Chicago — Beginning  of  the  crisis 
in  New  York — Speculations  of  Heinze  and  Morse — Suspension  of  cash  payments — 
General  use  of  Clearing  House  Certificates — Other  means  of  meeting  emergencies — 
Chicago's  first  departure  from  cash  payments — Freedom  of  Illinois  from  bank 
failures — Termination  of  the  receivership  of  the  Third  National  Bank  of  Chicago. 

After  the  panic  of  1904,  which  had  been  due  in  large  part  to  the 
efforts  of  the  "trust  busters"  who  had  destroyed  business  confidence, 
it  was  hoped  and  believed  that  the  election  of  Roosevelt  in  Novem- 
ber, 1904,  would  end  this  difficulty  through  the  President's  wise  dis- 
crimination between  harmful  and  beneficial  trusts.  In  this,  however, 
the  business  world  was  to  be  disappointed,  for  after  the  election 
"trust  busting"  became  an  even  more  popular  political  pursuit.  Nev- 
ertheless, the  year  1907  opened  with  an  almost  feverish  business  ac- 
tivity, probably  a  climax  to  the  almost  steady  increase  in  general 
prices  and  industrial  activities  which,  in  spite  of  many  difficulties, 
had  prevailed  for  the  preceding  ten  years.  Large  sums  were  being 
used  in  the  development  of  railroads,  oil  and  mining  properties,  and 
manufacturing  and  commercial  undertakings,  while  blocks  of  securi- 
ties of  a  somewhat  speculative  nature  were  being  forced  on  the  mar- 
ket to  such  an  extent  as  to  greatly  imperil  the  financial  stability  of 
the  country.  At  the  same  time  the  rapid  promotion  of  business  and 
growth  of  individual  industries  had  more  than  doubled  production 
in  many  branches  and  brought  with  it  a  greatly  lessened  efficiency  in 
operation.  Banks,  which  on  the  whole  had  been  in  an  exceedingly 
strong  position  at  the  beginning  of  the  decade  following  the  settle- 
ment of  the  silver  question,  had  cut  down  their  reserves  to  a  perilous 
extent  and  invested  large  amounts  of  their  resources  in  speculative 
or  non-liquid  securities. 

Furthermore,  following  the  San  Francisco  disaster  of  April, 
190(5,  in  which  large  amounts  of  capital  had  been  destroyed,  there 

346 


HISTORY  OP  BANKING  IX   ILLINOIS  347 

had  been  ample  indications  that  the  pace  was  too  rapid  and  that 
economic  equilibrium  was  being  destroyed.  In  fact,  the  recent  deci- 
sion of  European  markets  to  cut  off  the  supply  of  gold  had  plainly 
shown  that  the  strain  was  world-wide  and  this  fact  in  itself  should 
have  been  enough  to  establish  caution  among  banking  institutions. 
But  even  with  all  these  signs  of  approaching  panic  and  the  fact  that 
lack  of  confidence  in  the  speculative  securities  being  floated  had  so 
undermined  the  investment  market  as  to  make  it  necessary  for  cor- 
porations of  the  highest  standing  even  to  use  short  term  financing, 
no  attention  was  paid  to  the  obvious  warnings,  although  much  pub- 
licity was  given  to  every  suggestion  of  further  advance. 

It  was  recalled  that  onlv  as  recentlv  as  the  end  of  Julv,  1906,  the 
United  States  Steel  Corporation  had  resumed  dividends  and  that  less 
than  a  month  later  the  Union  Pacific  Railroad  had  advanced  its  divi- 
dend from  six  to  ten  per  cent.  Also  the  Southern  Pacific  Railroad 
had  begun  paying  dividends  of  five  per  cent.  This  action  on  the 
part  of  these  three  great  corporations  greatly  encouraged  an  opti- 
mism already  too  much  in  evidence. 

In  spite  of  the  fact  that  on  March  13  and  14,  a  panic  occurred 
on  the  Xew  York  Stock  Exchange  and  that  banks  as  a  whole  had 
invested  so  large  a  proportion  of  their  funds  as  not  to  be  in  a  posi- 
tion to  meet  a  serious  situation  adequately,  a  Chicago  newspaper 
played  up  the  strength  of  that  city's  banking  institutions  after  the 
statement  call  of  May  of  that  year  in  glowing  terms  in  which  the  debts 
of  these  banks  were  set  forth  as  evidences  of  their  strength.  Under  the 
heading  "Deposits  in  Chicago  Banks  Largest  in  Their  History — To- 
tal Exceeds  $707,000.000— Gains  by  State  Institutions  More  Than 
Twice  Those  of  the  Nationals  *  *  *"  the  article  went  on  to 
say: 

"Deposits  in  Chicago  banks  are  now  the  largest  in  their  history, 
the  total  being  $707,000,000.  While  deposits  as  a  whole  are  the 
largest  ever  shown,  at  least  twenty-four  banks  individually  enjoyed 
a  high  record  so  far  as  records  have  been  shown  by  official  reports  in 
response  to  the  calls  of  the  national  banks  and  the  state  auditor  for 
the  state  banks.  The  last  call  for  statements  covered  the  condition 
of  the  banks  at  the  close  of  business  on  May  twentieth  and  it  is  these 
figures  which  are  presented. 

"The  state  bank  lists  were  generally  published  yesterday  and  a 
summary  of  the  loans,  deposits,  and  cash  resources  of  twenty-eight 
institutions  makes  the  following  exhibit: 


348  FINANCING  AN  EMPIRE 

STATE  BANKS 

Loans  Deposits         Cash  Reserves 

Mav      20,  1907 $242,444,851         $367,259,997         $103,839,125 

March  22,  1907 240,603,413  344,142,681  84,350,000 

Per  cent  increase 0.8  6.7  23.1 

NATIONAL  BANKS 

Mav      20,  1907 $235,170,216         $340,496,702         $137,014,731 

March  22,  1907 233,668,807  331,338,802  125,203,470 

Per  cent  increase 0.6  2.7  9.4 

Total   increase 0.7  4.7  14.9 

"The  gain  in  cash  by  the  state  banks  was  more  than  twice  that  of 
the  nationals,  being  over  $23,000,000.  The  percentage  of  gain  in  cash 
resources  was  also  greatly  in  excess  of  that  of  the  national  institu- 
tions, being  23.1  per  cent. 

"Of  the  twenty-eight  state  banks  whose  figures  are  published, 
fifteen  make  high  records — that  is  in  comparison  with  any  statements 
previously  published,  although  at  intervals  many  of  the  institutions 
have  had  a  larger  amount  of  deposits.  The  fifteen  state  banks  mak- 
ing a  record  in  deposits  follow: 

Central  Trust  Company $12,776,706 

Chicago  Savings  Bank 2,707,776 

Colonial  Trust  and  Savings  Bank 2,888,079 

Drexel   State  Bank 1,444,534 

Drovers  Trust  and  Savings  Bank 2,111,780 

First  Trust  Companv 37,849,480 

Hibernian 21,071,713 

Illinois  Trust 96,392,622 

Kaspar  State  Bank 2,404,632 

Mutual   Bank 1,979,493 

Prairie   State  Bank 6,437,524 

Pullman  Trust  and  Savings  Bank 3,458,353 

South  Chicago  Savings  Bank 1,419,144 

Stockyards   Savings  Bank 1,967,583 

State  Bank  of  Chicago 18,011,124" 

The  Currency  Act  of  1900  had  made  the  issue  of  bank  notes  more 
profitable  than  before  and,  as  a  result,  between  February  13,  1900, 
and  August  22,  1907,  bank  note  circulation  had  risen  from  an  amount 
of  $204,900,000  to  $551,900,000.  This— nearly  three  hundred  and 
fifty  million  dollars — had  been  provided  to  meet  the  needs  for  money 
and  to  supply  reserve  requirements  of  state  banks  and  trust  com- 


HISTORY  OP  BANKING  IN  ILLINOIS 


349 


paines.  Also,  the  act  permitted  national  banks  to  secure  and  retain 
a  larger  proportion  of  other  kinds  of  money,  so  that  the  cash  hold- 
ings increased  from  $388,900,000  on  October  5,  1897,  to  $701,800, 
000  on  October  22,  1907.  This  amount  was  sufficient  to  permit  the 
banks  nearly  to  double  their  productive  investments  without  dimin- 
ishing the  ratio  of  cash  to  deposits,  but  actually  such  investments 
were  increased  far  more  than  this-nearly  tripled,  in  fact-and  the 
customary  proportions  of  reserve  to  deposits  had  now  become  dis- 
t.nctly  less  than  m  the  years  before  the  panic  of  1873  and  1893. 
(A  H.story  of  Cnses  under  the  National  Banking  System  by  O.  M. 

After  the  stock  market  panic  of  March  fourteenth,  some  recovery 
was  evidenced  a,  early  as  the  end  of  the  month,  but  in  August  an- 
other decline  set  m  which  seems  to  have  been  the  only  episode  of  the 
year  directly  asenbable  to  the  activities  of  the  government  in  the  re- 
straint of  corporations,  as  it  followed  immediately  upon  a  twenty- 
mne  million  dollar  fine  imposed  on  the  Standard  Oil  Company  of 
Indiana.  After  this  there  followed  a  number  of  unfavorable  events 
which  served  to  weaken  confidence,  and  by  autumn  there  began  what 
in  all  probability  was  the  most  extensive  and  most  long-drawn-out 
break-down  of  the  country's  credit  machinery  which  had  ever  oc- 
curred smce  the  establishment  of  the  national  banking  system 

During  the  first  half  of  September  the  unsound  condition  of  af- 
fairs was  somewhat  revealed  when  a  loan  contraction  of  onlv  twenty- 
seven  milhon  dollars  brought  call  rates  to  forty  per  cent,  thirty  per 
cent,  and  twenty-five  per  cent  on  successive  days.  The  situation  was 
relieved  somewhat  by  the  efforts  of  the  Secretary  of  the  Treasury 
and  also  by  the  operation  of  foreign  exchange,  so  that  during  Sep^ 
tember  and  October  money  in  circulation  increased  by  approximately 
one  hundred  million  dollars.  Treasury  holdings  were  relceTiwet 
tj  -three  millions  thereby,  and  these  funds  were  placed  on  deposit  hi 
banks  while  state  and  other  bonds  were  accepted  as  security  on  the 
condition  that  these  banks  would  release  their  holdings  of  United 

ttane,H°nfiftaSfa  basis„for  further  note  issues.  With  this  aid  and 
the  nearly  fifty-four  millions  secured  through  gold  imports,  the  New 
York  banks  were  enabled  to  meet  crop  moving  requirements  by  the 
middle  of  September  without  any  considerable  loss  in  cash 

The  real  beginning  of  the  crisis  developed  in  October  when  eight 
banks  faded  in  New  York,  largely  because  of  the  speculation  o 
those  m  control.    All  of  these  institutions  were  held  so  closely  under 


350  FINANCING  AN  EMPIRE 

the  direction  of  one  or  two  men  that  even  though  they  had  been  sus- 
pected for  as  much  as  six  years,  no  one  outside  the  banking  depart- 
ment had  the  right  to  investigate  and  this  department  for  some  rea- 
son or  other  was  not  able  to  secure  definite  evidence  against  the  in- 
stitutions. 

The  immediate  incident  precipitating  these  bank  failures  was 
the  collapse  of  a  corner  in  the  stock  of  the  United  Copper  Company 
which  had  been  engineered  by  the  firm  of  Otto  Heinze  and  Company 
— composed  of  the  brothers  and  associates  of  F.  Augustus  Heinze 
of  Montana.  In  the  summer  of  1907,  F.  Augustus  Heinze  made  his 
appearance  on  the  financial  stage  in  New  York  City  where  he  se- 
cured control  of  the  Mercantile  National  Bank  and  the  election  to 
its  presidency.  Up  to  this  time  The  Mercantile  National  Bank  had 
been  a  highly  respected  bank,  but  after  Heinze  obtained  control,  he 
seems  to  have  employed  the  resources  of  the  institution  in  his  specu- 
lations; then  the  copper  corner  failed  and  the  bank,  unable  to  meet 
its  clearings,  was  thrown  on  the  clearing  house.  An  examination 
showed  the  institution  to  be  solvent,  but  the  Clearing  House  Asso- 
ciation agreed  to  help  it  out  of  its  difficulties  only  on  condition  that 
Heinze  get  out.  Even  with  the  aid  of  the  Clearing  House  Associa- 
tion, the  bank  had  so  far  lost  the  confidence  of  the  public  that  other 
banking  institutions  were  scrutinized  for  similar  difficulties  and  very 
soon  a  run  was  started  on  the  Knickerbocker  Trust  Company,  also 
believed  to  be  in  a  badly  extended  condition  because  of  the  specula- 
tions of  its  president  with  Charles  W.  Morse,  who  was  known  to  be 
intimately  associated  with  Heinze,  not  alone  in  the  copper  corner,  but 
also  in  the  manipulation  of  the  courts  of  Montana  and  other  dishon- 
orable transactions  in  mining  and  banking.  The  financial  indiscre- 
tions of  these  two  men  had  previously  been  the  object  of  much  crit- 
icism at  the  hands  of  Thomas  W.  Lawson  in  his  well  known  articles 
on  "Frenzied  Finance."  Morse,  Heinze,  and  their  associates  had 
long  had  the  reputation  of  being  speculators,  or  at  least  of  being 
engaged  in  operations  of  questionable  merit,  and,  in  addition  to  their 
interests  in  the  Mercantile  National  Bank  and  the  Knickerbocker 
Trust  Company,  they  were  known  to  have  a  joint  ownership  in  or 
control  over  a  number  of  small  banking  institutions  in  New  York. 
Naturally,  it  was. these  institutions  which  were  the  first  to  succumb 
in  the  panic. 

Thus,  New  York  became  the  storm  center  at  this  time.  Shortly 
after  the  downfall  of  the  eight  banks  and  the  Knickerbocker  Trust 


HISTORY  OF  BANKING  IN  ILLINOIS  .        351 

Company,  runs  began  on  other  prominent  trust  companies  whose 
difficulties  soon  involved  banks  and  commercial  organizations  in  other 
parts  of  the  country.  As  a  consequence,  the  various  Westinghouse 
Companies  were  unable  to  secure  the  renewal  of  a  large  floating  in- 
debtedness and  went  into  receivership,  whereupon  the  Pittsburgh 
Stock  Exchange,  which  dealt  almost  exclusively  in  local  securities, 
was  closed  and  remained  so  during  November  and  December.  This, 
while  presumably  affecting  only  the  Pittsburgh  district,  actually 
contributed  to  the  alarm  rapidly  spreading  throughout  the  whole 
country  and  before  long  country  banks  were  withdrawing  their  depos- 
its from  city  reserve  institutions.  The  resulting  financial  condi- 
tions were  due  far  more  to  a  lack  of  confidence  on  the  part  of  bank- 
ers in  one  another  than  to  any  other  cause.  Thus,  a  panic  which  had 
begun  in  New  York  through  public  loss  of  confidence  in  banks  under 
the  management  of  speculators,  spread  over  the  country  in  the  shape 
of  a  lack  of  confidence  by  banks  in  one  another,  a  situation  resulting 
from  a  belief  that  under  strained  conditions  city  correspondents 
would  not  pay  depositing  banks  the  cash  balances  due  them.  To  a 
large  extent  this  was  true  and  was  attributable  to  the  defective  re- 
serve laws  which  had  caused  similar  difficulties  in  previous  panics 
because  they  permitted  so  large  a  part  of  the  resources  of  the  whole 
nation  to  be  accumulated  in  one  place.  The  panic  of  1907  definitely 
demonstrated  both  to  banks  and  to  the  public  that  this  so-called  re- 
serve was  not  reserve  at  all,  as  it  was  not  available  on  demand. 

Had  it  not  been  for  the  speculations  of  Heinze  and  Morse,  it  is 
reasonable  to  suppose  that,  while  conditions  were  ripe  for  a  panic, 
liquidation  might  have  proceeded  more  slowly  and  quietly  and  noth- 
ing more  serious  than  a  gradual  decline  in  business  activities  might 
have  occurred. 

These  two  men  were  tried  and  Morse  was  convicted  and  sentenced 
to  imprisonment  for  a  term  of  fifteen  years  in  the  penitentiary  at  At- 
lanta. Georgia.  After  serving  only  two  and  one-half  years  of  his 
term,  President  Taft  pardoned  him  because  of  failing  health.  Heinze 
was  tried  some  months  after  Morse  and  acquitted.  In  1910  he  was 
again  tried  on  practically  the  same  charge,  but  the  indictment  Mas 
found  to  be  faulty  and  he  was  not  punished. 

Under  the  regulations  for  reserve  requirements  of  the  banks  of 
the  country  the  normal  condition  of  our  financial  institutions  had 
become  one  of  lack  of  preparation  for  emergencies ;  no  adequate  lend- 
ing power  nor  cash  reserves  were  available  for  them.     It  was  only 


352  FINANCING  AN  EMPIRE 

during  periods  of  depression  when  banks  could  not  find  borrowers 
that  the  reserve  was  kept  to  a  point  of  adequacy.  The  tendency  of 
this  same  ruling  to  make  the  banks  of  New  York  the  ultimate  reser- 
voir of  the  nation's  funds  constituted  an  even  more  pronounced  dif- 
ficulty in  1907  than  in  previous  panics.  Furthermore,  bankers'  de- 
posits in  New  York  were  at  that  time  of  such  magnitude  that  the 
banks  holding  them  were  more  conspicuous  than  in  previous  crises, 
and  so  attracted  more  attention.  In  1873,  for  instance,  when  the 
country  was  very  much  less  well  populated  and  not  yet  a  world  fig- 
ure in  finance,  there  had  been  seven  New  York  banks  holding  such 
deposits.     In  1907  there  were  only  six. 

The  only  certain  resources  available  to  banks  holding  large  de- 
posits of  other  bankers  was  a  large  cash  reserve  and  in  1907  this  was 
noticeably  lacking.  In  fact,  in  New  York,  bankers'  net  deposits 
were  more  than  twice  the  cash  reserve,  and  in  general  the  proportion 
of  cash  to  net  deposits  was  only  slightly  more  than  the  twenty-five 
per  cent  required  by  law. 

As  soon  as  the  panic  became  evident,  depositors,  who  had  come 
to  consider  a  crisis  synonymous  with  a  lack  of  cash,  withdrew  their 
funds  in  enormous  totals.  Some  made  these  withdrawals  in  order 
that  they  might  be  certain  of  having  money  for  definite  needs,  some 
because  of  unreasoning  fear  of  loss,  and  still  others  in  the  hope  that, 
as  difficulties  progressed,  they  might  be  able  to  sell  cash  at  a  pre- 
mium, as  had  been  done  on  former  occasions. 

This  situation,  together  with  the  withdrawal  of  funds  because  of 
runs  on  suspected  institutions  which  had  been  supported  by  the  New 
York  Clearing  House  Association,  made  it  necessary  for  bankers  of 
that  city  to  suspend  further  cash  payments  and  resort  to  clearing 
house  certificates  and  other  forms  of  circulating  currency  early  in  the 
autumn.  Once  this  decision  had  been  made  bv  the  New  York  banks, 
it  became  a  signal  for  similar  action  throughout  the  country,  and  by 
the  beginning  of  November  at  least  partial  suspension  of  cash  pay- 
ments was  general.  Soon  more  banks  in  more  cities  were  using  an 
illegal  "emergency  currency"  than  ever  before  during  the  history  of 
the  country,  and  never  before  had  this  paper  been  issued  in  such 
large  amounts  or  so  extensively  in  small  amounts  or  for  such  long 
periods  of  time.  There  were  then  one  hundred  and  sixty  clearing 
house  associations  in  the  country;  of  these  nearly  sixty  used  clear- 
ing  house  certificates  and,  excepting  Washington,  all  cities  of  first 
rank  resorted  to  such  currency. 


HISTORY  OF  BANKING  IN  ILLINOIS  353 

Dr.  A.  P.  Andrew,  later  Director  of  the  Mint,  who  made  a  most 
thorough  study  of  emergency  currency  in  1907,  obtained  reports 
from  one  hundred  and  forty-five  of  the  largest  cities.  In  at  least 
seventy-one  of  these,  resort  was  made  to  "emergency  currency"  in 
one  form  or  another,  and  in  twenty  others  the  most  important  cus- 
tomers of  banks  were  asked  to  mark  their  checks  "payable  only 
through  the  clearing  house."  He  found  that  in  still  other  cities, 
where  such  measures  were  not  used,  the  size  of  checks  that  banks 
would  cash  was  limited.  In  general,  it  may  be  said  that  in  two-thirds 
of  the  cities  of  twenty-five  thousand  or  more  the  banks  suspended 
cash  payments  to  some  degree.  In  thirty-six  of  the  larger  ones  the 
banks  agreed  to  limit  the  amount  of  cash  that  might  be  withdrawn  to 
a  specified  sum  which  varied  in  different  communities  all  the  way 
from  ten  dollars  to  three  hundred. 

Dr.  Andrew  estimated  that  two  hundred  and  thirty-eight  million 
dollars'  worth  of  clearing  house  certificates  were  issued  in  large  de- 
nomination, solely  for  the  use  of  banks  among  themselves  and,  in 
addition,  two  hundred  and  fifty  million  was  provided  in  small  de- 
nominations for  everyday  use  among  bank  customers.  This  smaller 
denomination  currency  consisted  chiefly  in  clearing  house  loan  cer- 
tificates, clearing  house  checks,  cashiers'  checks,  pay  checks,  and 
other  similar  media.  However,  not  all  of  this  issued  money  was 
actually  circulated;  it  is  probable  that  of  the  one  hundred  and  one 
million  dollars  issued  by  New  York  alone,  not  more  than  seventy- 
four  million  ever  was  put  into  actual  circulation. 

In  connection  with  these  enormous  issues  of  "emergency  cur- 
rency," it  is  interesting  to  recall  that  provision  of  the  National  Bank 
Act  which  states  that  no  bank  shall  issue  "any  other  notes  to  circu- 
late as  money  than  such  as  are  authorized  by  the  provisions  of  this 
title."  Countless  national  banks  issued  illegal  circulating  notes  in 
the  form  of  cashier's  checks  in  convenient  denominations  and  the 
same  was  done  by  state  banks,  in  spite  of  a  tax  of  ten  per  cent  on 
their  notes  provided  by  the  national  law  but  not  collected  in  this 
emergency.  These  checks  were  usually  payable  only  through  the 
clearing  house  or  in  clearing  house  funds  and  frequently  were  secured 
by  the  deposit  of  approved  collateral  with  a  committee  of  the  clear- 
ing house;  clearing  house  paper  was  always  so  secured. 

In  addition,  the  checks  of  individuals  or  corporations  were  drawn 
"To  Bearer"  and  made  "payable  through  the  clearing  house."    These 


354  FINANCING  AX  EMPIRE 

were  usually  known  as  "pay  checks,"  and  were  so  extensively  circu- 
lated in  small  denominations — often  the  majority  of  them  ran  in  one 
dollar  amounts — that  at  times  bank  clerks  had  to  work  far  into  the 
night  counting  and  caring  for  this  paper  which  had  come  to  them  by 
the  basketful,  and  even  then  it  could  not  always  be  handled  by  the 
usual  bank  force  but  extra  clerks  had  to  be  secured.  These  pay 
checks  did  not  constitute  a  liability  of  the  clearing  house,  nor  yet  of 
the  bank  on  which  they  were  issued,  but  only  of  the  individual  or 
corporation  for  whose  benefit  they  had  been  made  out. 

The  currency  issued  by  clearing  houses  fell  into  three  distinct 
classes.  The  clearing  house  loan  certificates,  ranging  in  denomina- 
tion from  five  hundred  to  twenty  thousand  dollars,  were  used  in 
settling  interbank  balances  and  did  not  fall  into  the  hands  of  the 
general  public.  In  1893,  eight  cities  were  reported  as  using  these 
certificates,  but  in  1907  not  less  than  forty-two  found  them  neces- 
sary. Also,  in  1893,  such  issues  were  confined  chiefly  to  the  north- 
east, with  Xew  Orleans  as  the  only  southern  city  using  them  and 
Detroit  the  most  westerly  one,  but  in  1907  they  were  used  every- 
where, from  the  largest  cities  to  very  small  towns. 

At  the  same  time  certificates  were  issued  and  used  equally  exten- 
sively in  denominations  of  from  one  dollar  to  twenty  and  in  a  few 
cases  were  to  be  found  in  convenient  sums  ranging  from  twenty-five 
cents  to  fifty  dollars.  These  were  not  used  among  banks,  but  were 
distributed  for  regular  circulation  among  individuals.  They  were 
usually  printed  to  resemble  government  money  and  passed  readily 
as  currency. 

The  third  type  of  clearing  house  currency  consisted  of  paper 
similarly  printed,  but  known  as  clearing  house  checks.  These  checks 
were  drawn  on  particular  banks  and  signed  by  the  manager  of  the 
clearing  house.  They,  like  the  certificates  of  both  classes,  were  pay- 
able only  through  the  clearing  house,  and  in  many  cities,  among 
which  was  included  Chicago,  these  checks  were  secured  by  the  banks 
upon  deposit  with  the  clearing  house  of  a  corresponding  amount  of 
the  loan  certificates  in  large  denomination. 


ev 


As  a  result  of  his  investigations,  Dr.  Andrew  found  that  this 
"emergency  currency"  had  been  issued  in  the  following  amounts  in 
the  cities  reporting  to  him.  He  estimated  that  if  allowance  were  to 
be  made  for  cities  from  which  no  figures  had  been  obtained,  the  total 
amount  of  issues  of  substitutes  for  cash  must  have  gone  above  five 
hundred  million  dollars. 


HISTORY  OF  BANKING  IN  ILLINOIS  355 

Clearing  House  Certificates  in  large  de- 
nominations     $238,000,000 

Clearing  House  Certificates  in  small  de- 
nominations      23,000,000 

Clearing  House  checks 12,000,000 

Cashiers'  checks 14,000,000 

Pay  checks 47,000,000 

Total  $334,000,000 

Although  most  of  this  currency  was  illegal,  it  passed  freely  and 
no  one  thought  of  prosecuting  or  interfering.  Large  amounts  issued 
by  state  banks  were  subject  to  a  ten  per  cent  tax,  but  no  one  thought 
of  collecting  the  tax.  Since  most  of  this  paper  carried  the  words 
"payable  only  through  the  clearing  house,"  its  holders  could  not  de- 
mand cash.  Therefore,  in  reality,  this  was  an  unconvertible  paper 
money  without  the  sanction  of  the  law.  Nevertheless,  it  was 
able  to  meet  conditions  for  which  our  banking  laws  did  not  provide 
and  in  all  f>robability  prevented  multitudes  of  bankruptcies. 

There  were  times,  however,  when  this  emergency  currency  did 
not  fully  meet  the  needs  of  the  days  of  crisis  and  there  were  some 
sections  of  the  country  in  which  the  banks  refused  to  resort  to  these 
substitutes  for  cash.  On  occasions  of  great  need  conditions  were 
met  in  a  variety  of  ways,  among  the  most  unique  and  extreme  of 
which  was  the  custom  of  governors  of  western  states  to  declare  legal 
holidays  extending  over  long  periods  of  time.  The  governor  of  Ne- 
vada began  on  October  24  and  declared  all  days  legal  holidays  up  to 
and  including  November  4.  In  Oregon  the  holiday  extended  from 
October  28  to  December  14,  and  in  California  for  an  even  longer 
period — from  October  31  to  December  21 — which  brought  about  the 
suspension  of  the  payment  of  all  debts  in  that  state  for  more  than 
seven  weeks.  During  these  holiday  periods,  no  financial  transac- 
tions might  be  carried  on,  nor,  on  the  other  hand,  could  other  activi- 
ties usually  susj>ended  on  legal  holidays  be  continued.  Thus,  in 
relieving  one  situation,  this  method  often  brought  about  great  in- 
convenience in  another.  The  banks  of  these  western  states  were 
frequently  opposed  to  this  method  of  their  governors  in  meeting  their 
difficulties.  Through  it  the  whole  judicial  system  was  brought  to  a 
standstill  and  the  courts  were  even  restrained  from  trying  criminal 
cases.  In  California  the  governor  attempted  to  overcome  this  par- 
ticular difficulty  by  declaring  "special  holidays,"  during  which  civil 


356  FINANCING  AN  EMPIRE 

actions  based  on  contracts  for  the  payment  of  money  were  prohibited 
and  all  else  might  continue.  On  the  whole,  however,  the  banks  pre- 
ferred to  let  business  and  other  affairs  continue  in  as  normal  a  man- 
ner as  could  be  accomplished  under  the  circumstances  and  to  keep 
themselves  out  of  difficulties  by  the  more  usual  method  of  discrim- 
inating in  the  making  of  cash  payments. 

Although  the  banks  of  Chicago  had  consistently  refused  to  use 
clearing  house  certificates  in  other  emergencies,  it  became  necessary 
to  such  an  extent  in  1907  that  in  Chicago  alone  $39,240,000  of  such 
paper  was  put  out  which  was  the  third  largest  issue  of  any  city  in 
the  country.  Only  New  York  with  $101,060,000,  and  Pittsburgh 
with  $54,445,000  used  more.  (A  History  of  Currency  in  the  United 
States,  Hepburn,  p.  391.)  Joliet  circulated  $225,000  of  emergency 
currency  and  Peoria  reported  some  $227,000.  At  Joliet  the  substi- 
tutes for  cash  were  almost  wholly  confined  to  cashiers'  checks  in  con- 
venient denominations.  The  first  issue  was  made  there  on  Novem- 
ber 10,  1907,  and  the  last  checks  outstanding  were  retired  on  Janu- 
ary 5,  1908.  Peoria  used  the  clearing  house  loan  certificates  in  small 
denominations.  The  first  of  these  appeared  there  on  November  1, 
1907,  and  were  all  retired  by  January  1,  1908.  Also,  in  Peoria  cash 
withdrawals  were  limited  to  two  hundred  dollars  a  customer. 

Since  so  many  cities  were  using  "emergency  currency,"  those  not 
issuing  it  were  known  as  "honor  roll"  cities.  Among  those  in  Illi- 
nois which  had  a  population  of  twenty-five  thousand  or  more,  there 
were  three  "honor  roll"  cities — Quincy,  Rockford,  and  Springfield. 
These  three  cities  gave  Illinois  an  exceptionally  good  standing  among 
the  states  of  the  country  in  this  respect.  New  York,  Massachusetts, 
and  Pennsylvania  each  had  eight  such  cities ;  New  Jersey,  Ohio,  Con- 
necticut, and  Illinois  had  three;  Kentucky,  Virginia,  and  Texas  two 
each ;  and  there  was  one  in  each  of  the  states,  Florida,  Indiana,  Iowa, 
Maine,  Michigan,  Montana,  New  Hampshire,  Tennessee,  Wiscon- 
sin, and  the  District  of  Columbia.  In  the  remaining  twenty-six 
states  there  seem  to  have  been  no  cities  with  a  population  of  as  much 
as  twenty-five  thousand  whose  banks  did  not  at  least  partially  re- 
strict cash  payments  during  the  panic. 

As  a  reserve  city,  Chicago  carried  large  deposits  of  banks  located 
in  other  cities.  In  1897,  immediately  after  the  long  depression  dur- 
ing which  it  was  not  easy  to  find  a  place  for  bank  funds,  the  banks  of 
Chicago  had  the  high  reserve  ratio  of  thirty-six  per  cent.  For  some 
time  it  had  been  a  tradition  that  the  banks  of  Chicago  were  char- 
acterized by  the  unusually  high  reserve  which  they  carried.     How- 


Vol.  1—12 


HISTORY  OF  BANKING  IN  ILLINOIS  -      359 

ever,  after  1897  these  banks  began  to  break  away  from  their  custom, 
and  in  1899  the  ratio  had  fallen  to  twenty-five  and  four-tenths  per 
cent.  In  1902  it  was  down  to  twenty-one  and  nine-tenths  per  cent 
and  thereafter  every  autumn  at  crop  moving  time  the  banks  showed 
a  deficiency  until  1907,  when  they  had  twenty-five  and  three-tenths 
per  cent.  Bankers'  deposits  and  cash  reserves  of  the  important  banks 
of  the  city  on  August  22,  1907,  and  again  on  December  31  1907 
expressed  in  millions,  were  found  to  be  as  follows:* 

AUGUST  22,  1907 

Net 

Banks                                                                               Due  from  Due  to  Liability  Cash 

First  National.                                                                   ,"f  Bi!,llks  to  Banks  Kcserve 

Continental   National..'.':.'.','.'.'.' ^'J             f?-J  j|8.4  20-° 

Corn  Exchange  National J"J            f.$  f2'8  14.1 

Commercial    National \'%            f,l  ""J  10fi 

Bankers   National tl             JJ'J  lb-9  7.4 

National  Bank  of  the  Republic.'.'.'.'.'.'.'.;.'.' 3                     '  l'i  f° 

Fort  Dearborn   National.....                  VI              J"J  tl  32 

Drovers  Deposit  National....    7               lAa  J-?  20 

National  Live  Stock....  TI  *'8  31  12 

1-5  4.4  2.9  1,7 

DECEMBER  31,  1907 

First   National ,„  n  .„  „ 

Continental   National...::::: no  JJ-J  ??■?  17° 

Corn  Exchange  National J'J  JX'J  ??"]  102 

Commercial  National 2'J  JJ'J  "■*  »■<> 

Bankers   National....                   f?  J?"]  12S  6.3 

National  Bank  of  the  Republic:  i .' .'  i  i .' .'  i J  5  "^  J/J  ?.8 

Fort  Dearborn   National....                     ,'?  J"?  4f  2-8     ► 

Drovers    Deposit    National.....'.':;:::: 5  i%  '*  12 

National  Live  stock ;;;;;:;;     {%        \\        J-J         ^ 

Of  the  nearly  forty  million  dollars  in  emergency  currency  issued 
by  Chicago,  $32,160,000  consisted  of  clearing  house  loan  certificates 
m  large  denomination  for  the  use  of  bankers  alone.  The  first  of 
these  was  issued  on  October  28,  1907,  and  they  were  all  retired  by 
January  27,  1908.  On  November  20,  1907,  the  largest  amount  was 
outstanding  of  any  time  during  the  panic;  on  that  day  there  were 
in  circulation  $16,140,000  of  this  paper. 

Chicago  banks  did  not  use  clearing  house  loan  certificates  in 
small  denomination  for  general  circulation,  but  instead  confined 
themselves  to  the  use  of  clearing  house  checks  in  denominations  suited 
to  general  circulation.     Of  these,  $7,080,000  were  issued. 

While  the  banks  of  Chicago  did  not  have  any  specific  agreement 
as  to  the  amount  of  cash  to  which  any  one  customer  was  limited  it 
was  a  general  practice  to  put  some  limitation  on  withdrawals  The 
amount  was  left  to  the  discretion  of  the  individual  banks  and  they  in 
turn,  fitted  the  amount  to  the  particular  case  in  hand. 

*Sprague:    History  of  Crises   Under  the  National  Banking  System. 


360  FINANCING  AN   EMPIRE 

On  November  1,  however,  the  banks  of  Chicago  did  agree  to  dis- 
continue all  currency  shipments  to  their  correspondents  in  the  south 
and  west  except  in  extreme  eases.  This  ban  was  continued  only  for 
some  two  or  three  days. 

In  the  country  as  a  whole,  the  effects  of  the  panic  of  1007  were 
felt  for  some  time  after  its  occurrence,  but  the  banks  of  Illinois  suf- 
fered no  serious  difficulties  and  the  state  had  no  experiences  uncom- 
mon to  other  sections.  There  were  no  banks  which  went  into  the 
hands  of  receivers  in  Illinois  during  1007.  and  according  to  the  re- 
port of  the  state  auditor,  not  a  single  national  or  state  bank  closed 
its  doors. 

It  is  interesting  to  recall  that,  while  no  receiverships  occurred 
in  1007.  one  of  long  standing  was  actually  terminated  in  that  year. 
The  Third  National  Bank  of  Chicago  which,  along  with  a  number 
of  others,  had  gone  into  the  hands  of  a  receiver  in  1877.  had  remained 
so  all  these  years.  This  was  the  most  prolonged  receivership  of  any 
national  bank  up  to  that  time  and.  although  the  creditors  had  been 
paid  in  full  with  interest  within  five  years  after  the  bank  had  failed, 
its  affairs  were  not  settled  until  December  31,  1007.  because  of  the 
fact  that  certain  real  estate  in  and  around  Chicago  belonging  to  the 
bank  was  held  for  its  rapidly  increasing  value. 

Under  an  act  of  June  30.  1876,  the  comptroller  was  required  to 
call  a  meeting  of  the  stockholders  of  a  failed  bank  after  the  cred- 
itors had  been  paid  in  full,  for  the  purpose  of  electing  an  agent  to 
whom  the  receiver  might  entrust  the  remaining-  assets  to  be  liquidated 
for  the  benefit  of  the  stockholders.  In  this  case  the  meeting  was 
called  in  accordance  with  the  requirements  of  the  law.  but  the  stock- 
holders were  unable  to  agree  on  the  selection  of  an  agent.  Conse- 
quently, the  receivership  was  not  closed  and  continued  for  the  next 
fifteen  years. 

In  order  to  meet  this  situation  and  any  similar  ones  that  might 
again  occur,  the  act  was  amended  by  one  of  August  3.  180*2.  which 
authorized  the  shareholders  of  an  insolvent  bank  to  determine  by 
ballot,  at  a  meeting  called  by  the  comptroller  for  that  purpose, 
whether  to  elect  an  agent  or  to  continue  the  receivership  until  the 
affairs  of  the  bank  were  finally  wound  up.  In  accordance  with  this 
amendment  another  meeting  of  the  shareholders  wis  held  on  January 
11,  1803.  and  they  elected  to  continue  the  receivership  until  its  final 
liquidation.  Thus,  it  was  not  until  the  year  of  the  panic  that  this 
long-drawn-out  receivership  was   finally  terminated. 


CHAPTER  XIX 

A  PERIOD  OF  TURMOIL 

Interval  between  the  Panic  of  1907  and  the  Federal  Reserve  Act — General  interest  in 
monetary  and  banking  reform — Fight  against  monopolies  in  business — Amend- 
ments to  the  Illinois  Banking  Law — Chicago  assumed  place  in  first  rank  of  banking 
world — Citizen's  League  for  the  Promotion  of  Monetary  Legislation — Financial 
effects  of  declaration  of  war  in  Europe — Failure  of  the  Lorimer  banks  in  Chicago. 

During  the  period  between  the  panic  of  1907  and  the  passage  of 
the  Federal  Reserve  Act  which  was  to  eliminate  permanently  such 
periodic  money  crises  from  the  United  States,  the  evolution  of  the 
new  banking  system  formed  the  chief  subject  of  interest  and  cause 
for  misgiving  among  the  banking  and  economic  fraternity  of  the 
nation.  In  the  first  place  the  Aldrieh-Vreeland  Act  had  been  drawn 
up  as  a  political  measure  and  without  regard  for  the  opinions  of 
men  experienced  in  the  fields  of  economics  and  finance.  Then  when 
the  Act  redeemed  itself  through  the  creation  of  the  National  Mone- 
tary Commission,  that  body  went  about  its  investigations  so  slowly 
and  at  such  a  tremendous  cost  as  to  bring  about  its  dismissal  before 
the  researches  had  been  concluded.  Next  came  the  change  in  polit- 
ical control  of  Congress  with  its  resulting  apparent,  though  not  ac- 
tual, disregard  for  the  years  of  study  that  had  been  contributed  to 
pending  financial  legislation.  All  of  these  causes  for  anxiety  in  the 
final  outcome  for  the  banking  system  of  the  country  tended  to  a 
large  extent  to  minimize  occurrences  which  under  other  circumstances 
might  have  assumed  a  relatively  more  prominent  place  in  the  interest 
of  the  nation. 

Side  by  side  with  the  banking  controversy  there  was  taking  place 
another  reform  upon  whose  progress  the  tide  of  business  activity 
largely  hung.  At  this  time  big  business  had  developed  to  such  an 
extent  that  in  many  instances  monopolies  worked  a  real  detriment 
to  the  general  welfare  of  the  country  through  their  ability  to  destroy 
competition.  President  Roosevelt  recognized  the  danger  these 
monopolies  afforded  and,  in  his  characteristic  manner,  fought  them 

361 


362  FINANCING  AN  EMPIRE 

so  vigorously  as  to  keep  all  large  corporations  in  a  state  of  constant 
anxiety  lest  any  one  of  them  become  his  next  target.  The  Presi- 
dent's activity  in  this  direction  was  strongly  denounced  as  putting 
a  damper  on  all  business.  Nevertheless,  there  was  a  large  faction 
which  believed  with  the  nation's  executive  that  the  cost  of  eliminat- 
ing the  trust  evil  could  not  be  so  great  as  that  of  permitting  it  to 
remain.  Since  the  large  packing  and  steel  industries  centered  in  Illi- 
nois and  the  Standard  Oil  Company  was  so  close  as  to  wield  a  decided 
influence  on  the  business  of  the  state,  "trust  busting"  operations,  cen- 
tered upon  these  and  upon  many  others,  probably  affected  Illinois 
more  than  most  other  middle  western  states.  However,  the  state 
remained  strongly  Republican  in  its  position  and  supported  Mr. 
Roosevelt  on  every  election  in  which  he  was  a  candidate,  except  when 
he  was  on  the  Progressive  ticket,  and  even  then  it  gave  him  second' 
place  because  of  a  divided  party. 

In  a  prosecution  in  pursuance  of  the  President's  policies,  Judge 
K.  M.  Landis  in  the  United  States  Circuit  Court  at  Chicago,  ren- 
dered a  judgment  and  imposed  a  fine  of  $29,240,000  against  the  Stand- 
ard Oil  Company  of  Indiana  in  August  of  1907.  It  was  the  purpose 
of  Judge  Landis  to  penalize  the  parent  company — the  Standard  Oil 
Company  of  New  Jersey,  which  owned  all  of  the  stock  of  the  In- 
diana corporation — and  on  that  account  he  made  the  fine  so  enor- 
mous. The  judgment  was  passed  against  the  Indiana  corporation 
because  of  its  having  shipped  oil  at  concessions  from  alleged  legal 
rates.  The  judgment,  however,  did  not  stand.  It  was  appealed  and 
less  than  a  year  later  the  United  States  Circuit  Court  of  Appeals  set 
aside  the  fine.  Meantime  the  judgment  had  constituted  a  sufficiently 
heavy  blow  to  the  "oil  trust"  to  cause  it  to  curtail  operations  to  such 
an  extent  as  to  affect  business  generally  and  add  to  the  panic  already 
upon  the  country.  In  spite  of  this,  President  Roosevelt,  thoroughly 
convinced  of  the  need  for  reform  in  this  direction,  continued  his  cam- 
paign against  monopolies,  as  did  also  his  successor,  President  Taft. 
While  these  operations  stirred  the  country  deeply  and  brought  about 
much  comment  both  for  and  against  them,  they  did  not  exert  so  evil 
an  influence  as  the  President's  opponents  believed,  for,  during  these 
investigations  and  in  spite  of  the  impositions  of  judgments  and  fines, 
the  country  rapidly  extricated  itself  from  a  severe  panic  and  set  its 
face  toward  prosperity. 

A  decade  or  so  earlier  Illinois  had  passed  a  legislative  enactment 
curtailing  the  activities  of  trusts.     This  anti-trust  law  was  designed 


HISTORY  OF  BANKING  IN  ILLINOIS  3G3 

to  check  the  operation  of  the  earlier  forms  of  those  activities  in  which 
several  corporations  were  accustomed  to  pool  their  stock  with  a  trust 
committee  which  would  vote  the  pooled  stock  in  harmony.  Thus 
combinations  were  made  possible  that  led  to  the  restraint  of  trade 
and  to  legislation  which  drove  not  only  the  trust  agreement  but  also 
the  so-called  trusts  out  of  the  state.  The  Linseed  Oil  Trust  was  one 
of  the  earliest  combinations  operating  under  a  trust  agreement  of 
pooled  stock,  to  feel  the  effect  of  the  Illinois  anti-trust  law.  Like- 
wise this  unfriendly  legislation  drove  the  organizations  of  other  big 
industrial  combinations  to  other  states,  among  the  most  favored  of 
which  was  Xew  Jersey,  for  charters.  This  was  true  of  the  American 
Steel  and  Wire  Company,  the  National  Biscuit  Company,  and  un- 
questionably it  prevented  the  United  States  Steel  Corporation  from 
being  an  Illinois  company.  In  fact,  nearly  all  the  big  corporations 
formed  from  mergers  had  removed  their  principal  offices  from  Chi- 
cago before  the  Roosevelt  "Trust  Busting"  Campaign  had  started. 
One  of  the  few  remaining  in  this  state  was  the  International  Har- 
vester Company  which,  however,  was  incorporated  under  a  New  Jer- 
sey charter. 

In  addition  to  the  judgment  given  against  the  Standard  Oil  in- 
terests in  1907  and  other  attacks  made  on  these  same  corporations 
from  time  to  time  during  the  long  siege  against  the  trusts,  the  state 
of  Illinois  was  also  largely  affected  by  ever-threatening  action 
against  the  United  States  Steel  Corporation  which  had  numerous 
plants  in  the  territory  surrounding  Chicago,  the  American  Tobacco 
Company,  the  Linseed  Oil  Company,  and  the  famous  "sugar  trust." 
In  addition  to  these  there  were  numerous  lesser  "trusts"  within  or 
tributary  to  Illinois,  which  might  have  turned  the  state  definitely 
against  Mr.  Roosevelt  and  the  Republican  party  had  it  not  been  for 
the  fact  that  a  majority  of  her  citizens  were  of  the  opinion  that  a  little 
less  monopoly,  or  a  governmental  control  over  monopoly,  might  be 
for  the  best  interests  of  the  country.  On  February  11,  1913,  even  the 
Board  of  Trade  of  Chicago  was  charged  by  the  government  with 
having  violated  the  Sherman  Anti-Trust  Law,  on  the  grounds  of 
having  arbitrarily  fixed  the  prices  of  certain  grains  received  in  the 
city.  Thus,  it  will  be  seen  that  the  quarrel  with  monopolies  went 
along  with  nation-wide  efforts  at  currency  reform  and  thereby  the 
earlier  years  of  the  twentieth  century  were  marked  as  one  of  the 
greatest  periods  in  the  field  of  economic  reform  that  the  country  had 
yet  known. 


364  FINANCING  AN  EMPIRE 

Nor  was  such  reform  confined  to  national  efforts.  The  state  had 
very  scant  banking  laws,  and  even  the  constitution  contained  limited 
regulations.  The  legislature  of  1907  had  drawn  up  a  number  of 
amendments  to  the  Illinois  State  Banking  Law  which  were  ratified 
at  the  popular  election  held  on  November  3,  1908.  At  this  election 
five  specific  improvements  were  made  in  the  Law: 

1.  Section  4  was  made  to  provide  that  every  director  of  an  in- 
stitution governed  by  the  Act  must  own,  in  his  own  right,  at  least  ten 
shares  of  the  capital  stock  of  his  bank.  This  provision  had  been 
drawn  up  by  a  previous  legislature,  but  it  had  been  inoperative 
because  not  ratified  by  popular  vote. 

2.  The  same  section  was  further  amended  to  provide  that  any 
officer,  director,  or  employee  of  any  bank  who  willingly  and  know- 
ingly made  or  caused  to  be  made  a  false  statement  of  the  condition 
of  his  institution,  with  intent  to  deceive,  should  be  liable  to  from  one 
to  ten  years'  imprisonment. 

3.  Section  5  was  made  to  give  authority  to  the  state  auditor  to 
withhold  the  issuing  of  a  certificate  permitting  an  institution  to  begin 
business,  in  the  event  that  he  were  not  satisfied  as  to  the  personal 
character  and  standing  of  the  officers  or  directors,  or  when  he  had 
reason  to  believe  that  the  bank  had  been  organized  for  any  other  pur- 
pose than  that  contemplated  by  the  Act. 

4.  Section  10  was  amended  to  limit  the  total  liabilities  to  any 
association  of  any  person,  corporation,  or  firm,  to  fifteen  per  cent 
of  its  unimpaired  surplus,  not  including  undivided  profits,  and  such 
liabilities  were  at  no  time  to  exceed  thirty  per  cent  of  the  bank's 
capital.  However,  the  discount  of  bills  of  exchange  drawn  against 
actually  existing  values,  and  the  discount  of  commercial  or  business 
paper  actually  owned  by  the  person  negotiating  it,  were  not  to  be 
considered  as  money  borrowed.  This  amendment  likewise  provided 
that  loans  to  the  president,  vice-president,  salaried  officers,  or  em- 
ployees of  a  bank,  or  to  firms  or  corporations  controlled  by  them, 
were  to  be  prohibited  until  such  loans  had  been  approved,  both  as  to 
security  and  amount,  by  the  directors. 

5.  Section  11  was  given  added  provisions  concerning  the  course 
to  be  pursued  by  the  state  auditor  when  the  stock  of  any  bank  be- 
came impaired  and  also  for  the  appointment  of  a  receiver  when  the 
closing  of  a  bank  became  necessary. 

Both  state  and  national  banking  institutions  developed  to  such 
an  extent  at  this  time  that  Chicago  was  definitely  accorded  the  posi- 


EDWIN  A.  POTTER 


ELBERT  H.  GARY 


Two  men  prominent  in  the  merger  which  made  the  Continental  Banks  the  largest  single  banking 

institution  in  the  111111601  States. 


HISTORY  OF  BANKING  IN  ILLINOIS  .      367 

tion  of  one  of  the  two  most  prominent  banking  cities  of  the  country. 
Nor  was  Chicago  longer  to  be  considered  secondary  to  New  York 
in  every  financial  respect.  Her  banking  institutions  were  growing 
so  much  both  in  number  and  size  that  the  Commercial  and  Financial 
Chronicle,  published  in  the  larger  city  and  devoted  mainly  to  the 
banking  interests  of  New  York,  openly  admitted  on  May  11,  1912, 
that  the  Continental  and  Commercial  Banks,  formed  in  June,  1910, 
by  the  merger  of  the  Continental  National  Bank,  the  Commercial 
National  Bank,  the  American  Trust  and  Savings  Bank,  and  the  Com- 
mercial Trust  and  Savings  Bank — had  become  the  largest  bank  in 
the  United  States,  with  an  aggregate  of  deposits  exceeding  even  that 
of  the  National  City  Bank  of  New  York.  The  same  article  described 
the  general  growth  of  Chicago's  banking  institutions  as  marvelous 
and  said  that  Chicago  was  far  from  being  a  city  of  one  large  bank,  as 
many  ranked  on  a  par  with  the  larger  organizations  of  New  Y'ork. 
Furthermore,  while  some  of  New  York's  larger  banks  might  be  said 
to  have  been  the  result  of  transactions  on  Wall  Street  or  the  Stock 
Exchange,  the  same  was  not  true  of  Chicago,  where  every  important 
banking  institution  was  a  bank  in  the  truest  sense  of  the  word,  cater- 
ing only  to  a  business  which  came  from  and  assisted  in  the  growth  of 
a  legitimate  mercantile  community. 

For  the  first  time  in  its  history,  the  bank  deposits  of  Chicago 
passed  the  billion  dollar  mark  in  1912  and  clearings  in  that  year  were 
likewise  larger  than  ever  before.  In  the  preceding  decade  deposits 
had  more  than  doubled  and  the  similar  increase  in  all  other  branches 
of  the  banking  business  was  based  on  the  soundest  foundation  of  any 
group  of  banks  anywhere.  In  Chicago,  community  development  was 
Mich  that  banking  credits  were  based  mainly  on  products  of  the  soil 
and  farms.  Watered  stocks  and  the  undertakings  of  high  finance 
did  not  constitute  any  appreciable  factor  in  the  business  of  the  city's 
banks,  and  on  the  whole  the  city  was  remarkably  free  from  promotion 
schemes  of  a  questionable  nature. 

Because  of  Chicago's  importance  as  a  banking  center  at  this  time, 
a  new  association,  which  grew  out  of  the  monetary  conferences  held 
in  Washington,  chose  Chicago  as  its  first  meeting  point  and  later  as 
its  headquarters.  This  organization  was  known  as  the  Citizen's 
League  for  the  Promotion  of  Monetary  Legislation.  The  organiza- 
tion was  brought  into  existence  on  April  26,  1911,  by  a  committee 
consisting  of  Paul  M.  Warburg  and  Irving  T.  Bush  of  New  York, 
James  J.   Storrow  of  Boston,  George  B.  Markham  of  St.  Louis, 


368  FINANCING  AN  EMPIRE 

F.  N.  Faxon  of  Kansas  City,  C.  Stuart  Patterson  of  Philadelphia, 
and  Fred  W.  Upham  of  Chicago.  President  George  M.  Reynolds  of 
the  Continental  and  Commercial  Banks  of  Chicago  prepared  a  thirty- 
page  booklet  interpreting  the  Aldrich  Currency  Plan  which  was  used 
by  the  Citizen's  League,  and  other  prominent  bankers  likewise  con- 
tributed so  much  of  their  ability  to  its  progress  that  before  the  t'nd 
of  the  year  branches  had  been  actually  established  in  twenty-six  states 
and  were  in  process  of  formation  in  all  of  the  others.  During  a  cam- 
paign for  membership,  sixty-one  cities  in  Illinois  formed  branch  or- 
ganizations in  the  short  period  of  eight  days. 

That  this  was  not  primarily  a  movement  of  interest  to  bankers 
alone  is  indicated  by  the  personnel  of  the  officers  in  Chicago's  local 
branch.  These  men  were  John  V.  Farwell  of  John  V.  Farwell  and 
Company,  president;  John  Barton  Payne  of  the  South  Park  Commis- 
sion, vice-president;  J.  Laurence  Laughlin  of  the  University  of  Chi- 
cago, chairman  of  the  executive  committee;  A.  C.  Bartlett  of 
Hibbard,  Spencer  and  Bartlett,  treasurer,  and  Murray  S.  Wildman 
of  Northwestern  University,  secretary. 

Possibly  it  was  due  to  the  confidence  engendered  by  this  organiza- 
tion in  the  probability  of  a  future  free  from  intense  monetary  diffi- 
culties, that  the  year  1912  brought  uninterrupted  trade  expansion 
and  general  good  business  under  conditions  which  ordinarily  would 
have  been  sufficient  to  occasion  a  trade  reaction  of  more  or  less 
severity,  if  not  of  prostration.  That  year  the  presidential  election 
was  of  unusually  grave  importance.  There  was  no  actual  knowl- 
edge of  what  the  outcome  of  the  long  discussions  on  money  and  cur- 
rency would  be,  labor  difficulties  were  rather  general,  and  the 
Republican  party  was  so  hopelessly  split  as  to  have  two  candidates 
in  the  field  for  the  presidency.  All  these  things  might,  and  ordinarily 
would,  have  contributed  to  a  curtailment  of  commercial  prosperity, 
but  in  1912  they  seemed  to  make  little  difference  to  the  prosperous 
tone  that  general  business  had  assumed,  with  the  exception  of  a  short 
period  during  which  money  became  very  tight. 

The  year  1914  will  always  be  marked  for  one  event,  no  matter 
what  else  may  have  happened  during  those  twelve  months — the  out- 
break of  the  European  War  toward  the  end  of  July.  During  the 
preceding  year  or  more  political  difficulties  and  internal  dissension 
had  brought  business  to  a  low  ebb  in  practically  every  commercially 
important  country  of  the  world.  England  was  perilously  close  to 
civil  wrar,  France  had  serious  internal  troubles,  strike  riots  were  re- 


HISTORY  OP  BANKING  IN  ILLINOIS  3G9 

ported  from  a  number  of  Russian  cities,  and  Mexico  was  in  a  turmoil 
which  threatened  constantly  to  embroil  the  United  States.  Nor  was 
this  country  alone  seriously  affected  by  the  Mexican  difficulties.  Euro- 
peans had  made  large  investments  in  Mexico  which,  as  they  rapidly 
approached  a  point  of  no  value  whatsoever,  created  wide-spread  de- 
pression abroad,  and  contributed  in  large  part  to  the  money  strin- 
gency which  caused  practically  all  of  the  leading  European  countries 
to  declare  moratoria  at  the  outbreak  of  the  war.  The  United  States 
had  several  hundred  million  dollars  of  credits  in  Europe,  all  of  which 
were  thereby  rendered  completely  unavailable. 

At  the  same  time  all  the  financial  markets  of  the  world  appar- 
ently hoped  to  convert  their  securities  into  cash  in  America.  Conse- 
quently these  billions  of  dollars  worth  of  securities  were  dumped  on 
our  markets  without  limit  as  to  price,  and  created  great  havoc  in 
America.  Realizing  that  something  must  be  done  to  avoid  approach- 
ing ruin,  prominent  bankers  held  hurried  conferences  where  they  de- 
cided our  stock  exchange  must  be  closed,  turned  about  and  agreed 
that  they  could  see  the  situation  through  without  so  drastic  a  step, 
and  then  again  found  they  were  wrong.  Finally,  on  Friday,  July 
81,  1914,  just  a  few  minutes  before  opening  time,  the  bankers  of  New 
York  decided  that  they  had  reached  the  limit  of  their  endurance  and, 
although  they  had  agreed  only  the  day  before  that  it  would  not  be 
necessary  to  close  the  Stock  Exchange,  they  ordered  its  doors  to 
remain  closed.  This  was  the  first  time  such  a  step  had  been  taken 
since  the  panic  of  1873,  which  had  been  occasioned  by  the  failure  of 
Jay  Cooke  and  Company. 

Immediately  all  other  principal  stock  exchanges  of  the  country 
followed  this  decision,  and  among  those  which  closed  were  the  ex- 
changes of  Philadelphia.  Boston,  Baltimore,  Pittsburgh,  and  Chicago. 
Likewise  the  stock  exchange  of  London  suspended  on  the  same  day  as 
did  a  number  of  the  smaller,  individual  exchanges  dealing  in  cotton, 
produce,  and  other  commodities.  Two  notable  exceptions  were  the 
Chicago  Board  of  Trade,  and  the  New  York  Produce  Exchange, 
both  of  which  remained  open  continuously,  although  the  New  York 
Stock  Exchange  did  not  find  it  advisable  to  reopen  its  doors  until 
the  following  December. 

The  closing  of  these  exchanges  at  once  deranged  foreign  trade, 
imports  and  exports  alike,  until  conditions  in  that  quarter  were  as 
serious  here  as  in  the  countries  at  war.    In  Chicago  this  was  especially 


370  FINANCING  AN  EMPIRE 

evident  on  the  grain  markets  where  prices  rose  in  a  prodigious  manner 
and  then  as  sharply  declined. 

The  Chicago  stock  and  bond  markets  worried  along  somehow  until 
September  when  conditions  were  such  that  bankers  felt  some  emer- 
gency action  must  be  taken,  and  so  they  appointed  a  committee  con- 
sisting of  the  managers  of  the  bond  departments  of  five  large  down- 
town banks  who  conferred  with  a  similar  committee  of  representa- 
tives of  leading  bond  houses  and  the  stock  exchange.  These  men 
agreed  upon  uniform  rules  under  which  trading  in  securities  might 
be  carried  on  during  the  period  of  suspension  of  the  New  York  Stock 
Exchange  and  thereby  somewhat  eased  this  angle  of  the  general 
financial  tumult  which  existed. 

Chicago's  share  in  the  financial  difficulties  of  the  nation  and  of 
the  world  was  not  to  be  the  only  trial  endured  by  the  city  in  the  fate- 
ful year  1914.  In  Chicago  the  world  catastrophe  was  to  be  preceded 
by  a  local  bank  collapse.  On  June  12,  1914,  State  Bank  Examiner 
Daniel  V.  Harkin,  took  into  custody  four  Chicago  state  banking  in- 
stitutions, no  one  of  which  wras  affiliated  with  the  Chicago  Clearing 
House  Association,  but  all  of  which  were  related  through  their  un- 
official parent  institution,  the  LaSalle  Street  Trust  and  Savings 
Bank,  of  which  former  United  States  Senator  William  Lorimer  was 
president  and  C.  B.  Monday  acted  as  vice-president. 

In  many  ways  Lorimer's  plan  for  building  these  banking  institu- 
tions corresponded  to  that  used  by  Zimri  Dwiggins  back  in  1893. 
Like  Dwiggins,  the  Lorimer  group  organized  a  chain  of  small  banks, 
practically  without  capital,  which  were  feeders  for  a  large  down-town 
bank.  Lorimer  used  the  LaSalle  Street  Trust  and  Savings  Bank, 
which  was  a  conversion  of  the  LaSalle  Street  National  Bank,  as 
his  center  of  operations.  It  was  his  custom  to  secure  a  permit  to 
organize  a  small  bank  and  then,  after  selling  as  much  stock  as  pos- 
sible, to  make  up  the  difference  between  the  amount  sold  and  the 
capital  required  by  law  with  a  note  from  the  LaSalle  Street  institu- 
tion. The  cash  thus  received  would  be  turned  over  to  and  counted 
by  representatives  from  the  state  auditor's  office  and  the  charter 
granted.  Not  long  thereafter  the  same  cash  would  be  returned  to  the 
LaSalle  Street  Trust  and  Savings  Bank  for  duty  of  a  similar  nature 
in  some  other  section  of  the  city  or  state.  Many  of  the  banks  so 
started  had  a  capital  stock  represented  by  only  a  very  small  portion 
of  actual  money  exchanged.  In  all  of  these  institutions  C.  B.  Mun- 
day and  his  associates  figured  as  the  promoters,  and  it  was  always 


HISTORY  OF  BANKING  IN  ILLINOIS  371 

these  men  who  took  over  the  unsubscribed  portion  of  the  stock.  As 
many  as  ten  banks  in  Chicago  were  known  to  have  been  organized 
in  this  manner,  and  each  of  these  was  operated  entirely  under  the 
direction  of  the  La  Salle  Street  Trust  and  Savings  Bank,  in  which 
institution  they  kept  their  balances  and  interchanged  business  with  it 
just  as  though  they  were  its  legalized  branches. 

All  of  this  time  the  LaSalle  Street  Trust  and  Savings  Bank  was 
held  under  suspicion  and  was  widely  distrusted  as  a  "political  bank"; 
nevertheless,  and  largely  because  of  Lorimer's  political  influence,  his 
chain  of  banks  carried  a  total  of  $11,070,000  of  the  city's  funds. 

In  January,  some  six  months  before  the  failure,  State  Bank  Ex- 
aminer Daniel  V.  Harkin,  assigned  to  Chicago,  called  Lorimer  and 
Munday  to  Springfield  to  warn  them  that  they  must  resort  to  better 
banking  methods  and  build  up  their  cash  reserves  at  once.  There- 
after the  Lorimer-Munday  institutions  came  more  and  more  under 
the  suspicion  of  men  acquainted  with  financial  affairs.  Although 
the  statement  call  of  April  did  not  reveal  anything  radically  wrong 
with  the  LaSalle  Street  Trust  and  Savings  Bank,  it  was  so  generally 
known  that  things  were  not  as  they  should  be  that  the  price  of  the 
bank's  stock  rapidly  declined,  and  just  before  the  first  of  June  there 
began  a  quiet  run  lasting  for  some  two  weeks  during  which  depositors 
withdrew  about  one  and  one-half  million  dollars.  Many  depositors, 
however,  were  not  let  in  on  the  secret,  so  that  on  June  12  they  found 
themselves  minus  some  two  and  one-half  million  which  they  had  en- 
trusted to  Lorimer.  When  they  learned  of  the  many  who  had 
rescued  their  money  in  the  quiet  run,  they  were  inclined  to  believe 
that  officers  of  the  bank  had  informed  their  best  friends  of  the  dangers 
which  impended  and  had  thereby  enabled  their  favorites  to  withdraw 
at  no  loss.  However,  in  view  of  the  fact  that  financial  men  of  the 
city  had  mistrusted  the  LaSalle  Street  bank  for  some  time,  it  is 
equally  probable  that  the  run  was  the  direct  result  of  suspicions  from 
without.  In  fact,  some  days  before  the  closing  of  the  bank,  the  Clear- 
ing House  Association  made  special  j)reparations  for  the  assistance 
of  its  members  and  all  banks  clearing  through  them  when  the  crash 
came.  It  was  fortunate  that  this  precaution  was  taken,  for  the  bank 
examiner's  decision  that,  on  closing  the  LaSalle  Street  Trust  and 
Savings  Bank,  it  would  be  unsafe  to  allow  three  of  its  closely  affiliated 
institutions — the  Broadway  State  Bank,  the  Ashland  Twelfth  State 
Bank,  and  the  Illinois  State  Bank — to  remain  open  subject  to  runs 
at  a  time  when  a  large  portion  of  their  assets  were  tied  up  in  the 


372  FINANCING  AX  EMPIRE 

failed  institution,  created  such  excitement  that  runs  were  made  in 
many  sections  of  the  city  and  of  the  state  as  well. 

Some  of  the  institutions  thus  attacked  which  did  not  have  clearing 
house  protection  were  unable  to  survive,  and  almost  immediately  there 
failed  the  State  Bank  of  Calumet  which  had  $105,000  of  city  funds 
on  deposit;  the  Southwest  Savings  Bank,  a  private  institution  with 
four  thousand  dollars  tied  up  in  the  La  Salle  Street  Trust  and  Sav- 
ings Bank;  the  People's  Bank  of  East  Alton,  a  member  of  the  Muii- 
day  chain  but  strong  enough  to  withstand  the  run  for  three  days 
before  forced  to  close  its  doors;  the  Farmers'  Bank  at  Bethalto,  of 
which  Munday  was  also  president ;  the  Fern  wood  Trust  and  Savings 
Bank,  a  private  bank  located  in  the  southern  part  of  the  city  of  Chi- 
cago; and  the  State  Bank  of  Marine,  Illinois.  At  the  same  time  a 
number  of  commercial  operations  of  the  Lorimer-Munday  combine, 
such  as  the  Litchfield  Mill  and  Elevator  Company  and  C.  B.  Mun- 
day and  Company,  likewise  of  Litchfield,  which  held  a  majority  of 
stock  in  two  of  the  banks  that  had  failed,  went  into  bankruptcy. 

For  some  days  after  the  closing  of  the  La  Salle  Street  Trust  and 
Savings  Bank,  the  state  bank  examiner  kept  the  institution  in  his 
charge  while  he  made  a  thorough  investigation  of  its  records.  Before 
long  his  findings  led  him  to  express  the  opinion  that  the  association 
of  the  bank  with  the  many  smaller  institutions  had  been  for  the  sole 
purpose  of  unloading  on  them  securities  otherwise  unmarketable 
which  the  LaSalle  Street  Trust  and  Savings  Bank  had  acquired 
through  bad  management.  To  be  sure,  Lorimer  was  a  politician  and 
not  a  practical  banker.  Modern,  approved,  and  up-to-date  methods 
were  largely  conspicuous  in  his  banks  by  their  absence.  Munday 
had  acquired  some  experience  in  smaller  communities,  but  this  had 
been  in  places  so  small  that  the  custom  of  up-to-date  banking  had 
not  been  essential,  and  such  methods  as  he  introduced  failed  to  meet 
the  approval  of  a  banking  department  previously  supposed  to  be 
entirely  friendly  to  the  Lorimer  institutions. 

The  Lorimer  bank  project  first  became  public  in  Chicago  in  1910, 
when  there  was  founded  the  LaSalle  Street  Xational  Bank,  which 
was  liquidated  in  October,  1912,  and  the  LaSalle  Street  Trust  and 
Savings  Bank  organized  in  its  place.  For  a  time,  stock  in  the  na- 
tional bank  sold  as  high  as  134  but  that  of  the  succeeding  state  insti- 
tution never  rose  above  110.  Munday  was  the  heaviest  stockholder 
in  the  bank.  In  all  lie  held  2,606  shares,  while  Lorimer  had  only 
900  shares.    A  very  large  proportion  of  what  remained  was  held  by 


HISTORY  OF  BANKING  IN  ILLINOIS  .        373 

H.  W.  Huttig  of  Muscatine,  Iowa,  and  John  F.  Jelke,  a  manufac- 
turer of  oleomargarine.  From  the  very  beginning  Lorimer's  banking 
undertakings  aroused  opposition  on  the  ground  that  politics  and 
banking  could  not  and  should  not  be  mixed.  This  opinion  was  plainly 
set  forth  in  an  editorial  appearing  in  the  Chicago  Evening  Post, 
a  leading  daily,  on  February  10,  1910,  when  it  was  first  announced 
that  William  Lorimer  intended  to  go  into  the  banking  business  in 
Chicago.    The  editorial  said  in  part: 

"Whenever  Chicago  has  lived  up  to  its  real  banking  ideals  it  has 
been  able  to  stand  firm  against  attack.  But,  whenever  the  proper 
function  of  the  banker  has  been  confused  with  other  functions,  how- 
ever legitimate,  our  banks  have  courted  disaster.  Most  of  all  have 
we  suffered  from  'political  banking.' 

"Politics  had  its  hand  in  the  failure  of  the  Cook  County  National 
in  187o.  'State  funds'  and  the  politics  that  went  with  them  played 
their  share  in  the  Globe  Savings  and  Dreyer  smash-ups.  The  Bank 
of  North  America  had  political  rather  than  banking  direction,  and 
even  the  friends  of  John  R.  Walsh  cannot  deny  that  politics  was  the 
underlying  reason  that  made  inevitable  the  elimination  of  his  allied 
institutions  from  the  city's  banking  circle. 

"Outside  Chicago  the  ill  fortune  that  pursues  a  'political  bank'  has 
been  equally  notable.  The  Allegheny  National  failure  in  Pittsburgh 
was  a  disgraceful  example  of  the  working  out  of  an  alliance  between 
the  'machine'  and  finance.  The  Real  Estate  Trust  suspension  in 
Philadelphia  was  equally  bad  and  equally  illuminating.  Nor  can  the 
fair  observer  overlook  the  political  side  of  the  banking  trouble  in 
Oklahoma. 

"Politics  and  banking  were  not  made  to  drive  together.  Some 
men,  it  is  true,  have  built  sound  banks  in  political  strength,  but  in 
essence  the  two  things  are  wholly  at  variance.  For  politics,  of  all 
influences,  makes  the  most  insidious  attack  upon  the  judgment  of 
the  banker.  It  cunningly  interweaves  the  claims  of  personal  liking 
with  the  idea  of  'party  loyalty'  and  brings  to  bear  a  combined  leverage 
toward  unsound  finance  that  is  tremendous.  Even  the  'political 
banker'  who  has  the  highest  integrity  of  purpose  must  find  his  way 
beset  by  pitfalls  that  do  not  lie  in  the  way  of  the  ordinary  banker. 
Such  fine  financial  independence  as  that  shown  by  Mr.  Blair  in  1871 
would  be  to  the  last  degree  difficult  for  a  man  bound  by  the  count- 
less cross-ropes  of  politics. 

"As  we  see  it,  a  bank  should  be  a  bank,  solely  and  exclusively, 


374  FINANCING  AN  EMPIRE 

without  any  political  purpose  that  is  co-equal  with,  superior  to,  or 
even  inferior  to  its  proper  function.  We  hope  that  those  interests 
which  are  back  of  the  application  for  a  charter  for  a  new  trust  com- 
pany and  a  related  national  bank  in  this  city  will  take  steps  to  free 
the  enterprise  from  the  imputation  of  being  a  'political  bank.'  Of 
such  institutions  Chicago  has  had  more  than  enough." 

Such  warnings  as  the  above  were  remembered  when  State  Auditor 
James  Brady  revealed  the  fact  that  the  books  of  the  La  Salle  Street 
Trust  and  Savings  Bank  showed  bonds  valued  at  $917,660,  while  the 
actual  value  of  such  bonds  was  only  $255,385  and  that,  of  the  total 
loans  on  the  books  listed  as  $3,291,107,  only  approximately  $781,335 
could  be  classed  as  good  and  $763,687  as  of  doubtful  value.  These 
same  books  then  showed  seventeen  loans  on  real  estate  amounting 
in  all  to  $85,175,  and  of  these  only  six  notes  and  mortgages,  aggregat- 
ing $16,725,  could  be  found  in  the  bank.  The  institution's  entire 
capital  stock  and  surplus  had  been  dissipated,  while  total  liabilities 
reached  the  enormous  figure  of  $5,104,045. 

At  this  time  there  was  likewise  revealed  the  fact  that  E.  E. 
Hughes,  who  had  been  made  vice-president,  cashier,  and  a  director 
of  the  Broadway  State  Bank  at  the  time  of  its  organization  toward 
the  end  of  1913,  resigned  these  positions  within  one  month  after  the 
bank  opened  its  doors  for  business,  giving  as  his  reason  that  he  was 
not  in  accord  with  the  bank's  management.  It  is  plain  that  the  other 
directors  of  this  bank  were  not  in  a  position  to  perceive  the  state  of 
affairs  as  plainly  as  did  Mr.  Hughes,  for  they  were  greatly  surprised 
to  learn  at  its  closing  that  the  institution  had  some  $175,000  on  deposit 
at  the  LaSalle  Street  Trust  and  Savings  Bank,  instead  of  the  $40,000 
they  had  been  led  to  suppose. 

On  June  19,  W.  C.  Niblack,  vice-president  of  the  Chicago  Title 
and  Trust  Company,  was  appointed  receiver.  He  was  not  long  in 
discovering  that  the  LaSalle  Street  Trust  and  Savings  Bank  had 
accepted  deposits  after  it  had  become  insolvent  and  thereby  had  sub- 
jected its  officers  to  liability  of  imprisonment.  Likewise  the  law  had 
been  further  violated  through  the  making  of  illegal  loans;  large  quan- 
tities of  money  had  been  secured  in  this  way  apparently  for  the  pur- 
pose of  furthering  personal  or  political  ambitions. 

As  a  result  both  Lorimer  and  Monday  were  put  on  trial.  Lorimer 
was  acquitted  by  the  jury  after  a  long  and  tedious  trial  which  lasted 
three  months  and  cost  Cook  County  between  six  and  ten  thousand 
dollars.    Mundav  was  not  so  fortunate;  at  his  feet  was  laid  the  blame 


HISTORY  OP  BANKING  IN  ILLINOIS  .         375 

for  wrecking  the  bank.  He  appealed  the  case  and  was  granted  a  new 
trial  before  the  supreme  court,  but  at  its  termination  the  sentence 
remained  and  Monday  was  required  to  serve  a  term  in  prison.  Lori- 
mer  left  the  country;  some  years  later  he  was  heard  from  in  Colombia, 
South  America,  where  it  was  claimed  that  he  headed  a  syndicate  for 
developing  the  country  and  that  from  this  he  hoped  to  secure  suffi- 
cient money  to  pay  off  the  debts  to  his  banks. 

All  in  all,  the  year  1914  probably  represented  the  most  trying 
period  in  the  history  of  Chicago  finance.  There  was,  however,  one 
ray  of  hope  on  the  horizon  which  promised  to  relieve  the  future  strin- 
gencies, such  as  the  turmoil  of  that  year  had  produced,  and  also 
promised  a  closer  supervision  over  individual  banking  institutions 
which  in  time  might  avoid  recurrences  of  the  Lorimer  disaster.  That 
hope  lay  in  the  opening  of  the  Federal  Reserve  Bank  of  Chicago. 


CHAPTER  XX 
CURRENCY  REFORM— EMERGENCY  MEASURES 

Demands  for  banking  reform — Introduction  of  bills  by  Aldrich,  Fowler  and  Vreeland — 
The  Aldrich-Vreeland  Act  and  its  provisions — Efforts  to  organize  national  currency 
associations — Chicago's  reaction  to  these  attempts — War-time  activities  of  the 
National  Currency  Association  of  the  City  of  Chicago — Amendments  to  the  Aldrich- 
Vreeland  Act. 

The  Panic  of  1907  created  a  feeling  of  uncertainty,  and  soon 
resulted  in  a  general  public  clamor  for  legislation  that  might  effect 
a  decided  banking  reform  and  bring  about  a  greater  elasticity  in  our 
currency.  Economists  of  the  country  had  long  agreed  that  such 
a  measure  was  necessary,  but  previous  to  the  1907  demonstration  of 
the  inelasticity  of  our  circulating  medium  they  had  secured  little 
popular  or  legislative  support.  Now,  however,  President  Roosevelt 
demanded  from  Congress  that  the  needs  of  the  people  in  this  regard 
be  satisfied;  as  a  consequence,  a  flood  of  bills  was  introduced  most 
of  which,  as  is  usual,  had  been  drawn  up  without  adequate  study  of 
the  needs  of  a  situation  they  were  intended  to  remedy. 

The  burden  of  securing  this  legislation  fell  most  heavily  on  Sena- 
tor Nelson  W.  Aldrich  of  Rhode  Island  and  Congressman  Charles 
N.  Fowler  of  New  Jersey.  The  latter  was  born  in  Lena,  Illinois. 
and  graduated  from  the  Chicago  Law  School  before  going  east  to 
take  up  his  political  career.  These  gentlemen  were  made  chairmen 
of  the  finance  committees  of  their  respective  houses  of  Congress  and. 
in  line  with  his  duty  toward  the  demands  of  the  day.  each  submitted 
bills  which  he  believed  would  answer  the  needs  of  the  situation.  Sena- 
tor Aldrich,  in  drawing  up  his  bill,  was  careful  to  make  provision  for 
the  continuance  of  a  circulation  secured  only  by  bonds.  He  enlarged 
it  over  existing  rulings  by  adding  to  the  list  of  bonds  against  which 
such  circulation  might  be  issued.  Representative  Fowler,  on  the 
other  hand,  was  of  the  opinion  that  the  system  of  bond-secured  note 
circulation  should  be  eliminated  and  in  its  place  should  be  substituted 
one  more  capable  of  responding  to  seasonal  demands  for  currency. 

376 


HISTORY  OF  BANKING  IN  ILLINOIS  377 

His  bill,  although  indorsed  at  the  time  by  the  Currency  Commission 
of  the  American  Bankers'  Association,  was  not  favorably  received, 
even  in  the  House,  and  was  quickly  displaced  by  one  introduced  by 
Representative  Edward  B.  Vreeland  of  New  York  which  permitted 
the  circulation  of  currency  based  on  bonds  other  than  those  of  the 
federal  government,  and  also  on  commercial  paper. 

Long  debates  and  controversies  followed  in  which  the  politicians 
of  the  older  generation,  who  stood  with  Senator  Aldrich,  actively 
urged  his  bill  on  the  ground  that  in  some  sense  it  was  the  duty  of 
the  government  to  aid  in  advancing  the  prices  of  suitable  bonds,  which 
result  they  believed  would  certainly  follow  the  adoption  of  the  Aldrich 
hill.  Against  these  men  stood  the  younger  element,  especially  from 
the  middle  west,  in  both  the  Senate  and  the  House,  who  maintained 
that  a  banking  currency  based  on  and  protected  by  commercial  paper 
would  be  more  suitable.  However,  all  of  these  gentlemen  realized 
that,  in  view  of  the  fact  that  an  election  was  approaching,  it  was 
political  wisdom  to  rush  through  some  measure,  whether  or  not  it 
might  be  exactly  to  their  liking,  therefore  they  appointed  conference 
committees  to  harmonize  the  two  bills  in  such  a  way  that  sufficient 
votes  might  be  secured  for  the  passage  of  the  resulting  measure. 

As  the  last  days  of  the  session  approached,  the  conference  com- 
mittees hurriedly  drew  up  a  measure  containing  some  of  the  pro- 
visions originally  in  the  Aldrich  bill,  which  made  possible  the  issue  of 
notes  on  terms  almost  identical  with  those  of  the  old  "wild  cat"  days, 
and  others  from  the  Vreeland  bill  which  more  nearly  represented  the 
wishes  of  the  more  radical  members  of  Congress.  The  resulting 
Aldrich- Vreeland  Act,  passed  on  May  30,  1908,  was  one  which  poli- 
ticians attempted  to  believe,  and  which  the  country  was  led  to  think 
would  avoid  all  future  panics.  It  was  plain  that  these  claims  were 
made  without  any  great  knowledge  on  the  part  of  the  legislators  of 
the  exact  causes  of  panics  in  the  past.  We  must,  however,  accord  the 
men  responsible  for  it  the  justice  of  recognizing  that  even  to  their 
minds  the  new  act  was  a  makeshift,  adopted  without  proper  study 
and  investigation  because  of  a  political  situation,  and  not  expected  to 
be  a  real  measure  for  bank  reform.  The  mere  fact  that  Congress 
limited  the  life  of  the  measure  to  five  years  and  at  the  same  time 
created  the  National  Monetary  Commission,  which  was  to  spend  a 
number  of  years  in  making  a  thorough  study  of  financial  systems 
the  world  over,  shows  in  what  small  regard  as  a  reform  measure 
the  Aldrich-Vreeland  Act  was  held  by  its  makers.     It  was  simply  an 


378  FINANCING  AN  EMPIRE 

act  to  provide  for  additional  currency  in  event  of  an  emergency — an 
attempt  to  legalize  the  methods  used  illegally  in  the  panic  of  1907. 

A  story  is  told  in  Chicago,  where  the  bill  was  ardently  opposed 
by  several  prominent  bankers,  of  an  occurrence  just  before  the  Act 
was  passed,  when  Joseph  G.  Cannon,  Speaker  of  the  House  of  Repre- 
sentatives, passing  through  the  city  en  route  from  Washington  to 
Danville,  his  home  town,  decided  to  stop  off  and  obtain  the  viewpoint 
of  some  of  his  Chicago  banker  friends  on  the  proposed  legislation. 
He  called  first  on  John  J.  Mitchell,  then  president  of  the  Illinois 
Trust  and  Savings  Bank,  who  was  also  a  member  of  the  Chicago 
Clearing  House  Committee.  Mr.  Mitchell  was  strongly  in  favor  of 
the  proposed  Aldrich-Vreeland  Act  because  he  realized  keenly  the 
need  of  some  provision  for  a  greater  elasticity  in  currency.  When 
Mr.  Cannon  asked  for  the  general  viewpoint  of  Chicago's  bankers, 
his  friend  asked  the  Speaker  to  accompany  him  to  a  meeting  of  the 
Clearing  House  Committee,  which  was  about  to  assemble,  and  get  the 
viewpoint  of  the  members  first  hand. 

The  meeting  was  dominated  by  one  of  Chicago's  foremost  national 
bankers  who  declared  in  no  uncertain  terms  that  the  proposed  act 
was  fundamentally  wrong  and  that  he  intended  to  fight  it.  This 
roiled  Speaker  Cannon,  who  in  his  most  vehement  English,  for  which 
he  was  widely  known  when  stirred  up  by  opposition,  informed  the 
veteran  banker  that  it  made  no  difference  whether  or  not  he  were  to 
utilize  the  features  of  the  bill,  the  country  demanded  legislation  that 
would  meet  the  need  of  the  people  in  times  of  stress  and  panic  and 
Congress  was  going  to  pass  the  pending  bill. 

"How  can  you  as  a  state  banker  support  this  bill  as  you  do?" 
asked  this  national  banker  of  Mr.  Mitchell  later.  "During  the  panic 
of  1907  your  bank  earned  seven  per  cent  on  many  millions  of  clear- 
ing house  certificates.  Why  support  legislation  now  which  will  per- 
manently do  away  with  such  earnings  for  you?  I  am  telling  you, 
man,  that  even  though  we  did  not  have  your  advantage  in  1907,  my 
bank  will  never  issue  emergency  notes  under  the  proposed  Aldrich- 
Vreeland  Act!" 

"Well,"  said  Mr.  Mitchell,  "while  we  shall  be  permitted  to  issue 
no  currency  under  the  new  law  and,  as  you  say,  we  shall  be  giving  up 
a  possible  seven  per  cent  on  loans  to  the  Clearing  House,  still  all  of 
that  seven  per  cent  was  not  profit  in  1907.  In  order  to  make  those 
loans  we  had,  in  the  first  place,  to  require  notice  of  withdrawal  on 
our  time  deposits.     Until  1907  our  bank  had  never  permitted  such  a 


HISTORY  OF  BANKING  IN  ILLINOIS  370 

notice  from  its  depositors.  We  got  through  1873  and  1893  without 
that.  To  do  it  in  1907  hurt  our  pride  and  our  business  too.  Then, 
in  order  to  keep  our  bank  in  the  sound  and  ready  condition  which  our 
directors  have  always  demanded,  we  found  it  necessary  to  import 
eleven  million  dollars  in  gold  at  a  considerable  expense,  as  we  bought 
foreign  exchange  and  purchased  the  gold  in  the  open  market  in 
London.  Less  than  $2,000,000  of  that  gold  was  unpacked,  but  our 
conservative  policy — the  only  just  policy  so  far  as  our  depositors  are 
concerned — demanded  that  we  have  it  on  hand  in  case  of  need.  By 
the  time  we  had  paid  the  express  and  insurance  charges  on  that  parcel 
of  gold,  we  had  precious  little  of  our  seven  per  cent  left  and  still  we 
had  to  charge  off  the  damage  done  our  pride  and  reputation  by 
demanding  notice  on  withdrawals." 

The  gold  importing  incident  emphasized  to  western  banks  the 
value  of  carrying  rather  large  credits  in  New  York  banks.  At  the 
+ime  of  the  transaction,  this  particular  bank  had  balances  in  New 
York  and  London  of  approximately  $40,000,000 — all  available  for 
the  purchase  of  gold  as  needed. 

The  rather  significant  sequel  to  the  clearing  house  story  was 
that,  when  in  1914,  emergency  currency  under  the  Aldrich-Vreeland 
Act  was  resorted  to,  it  was  the  man  who  had  fought  it  so  desperately 
in  1908  who  urged  the  issue  most  strongly  in  1914.  Also,  his  bank 
was  one  of  the  first,  if  not  the  first,  institution  in  Chicago  to  take  out 
Aldrich-Vreeland  notes. 

The  new  act  made  two  provisions  for  issuing  emergency  cur- 
rency. Doubtless  those  who  drew  up  the  bill  were  of  the  opinion  that 
these  were  sufficient  to  make  possible  the  issuing  of  such  notes  in  time 
of  need  by  any  national  bank  in  the  country,  no  matter  where  or  how 
located.  As  a  matter  of  fact,  no  notes  were  issued  under  the  act  until 
approximately  the  date  set  for  its  expiration,  and  only  then  after 
drastic  changes  had  been  made. 

The  first  condition  under  which  this  currency  might  be  issued  per- 
mitted any  national  bank  to  make  direct  application  to  the  Comp- 
troller of  the  Currency  for  notes  up  to  an  amount  of  ninety  per  cent 
of  the  market  value,  but  not  more  than  the  par  value,  of  bonds  of 
states,  counties,  towns,  cities,  or  other  municipalities  which  had  been 
in  existence  for  at  least  ten  years  and  which  for  a  period  of  ten  years 
previous  to  the  time  of  application  had  not  defaulted  in  the  payment 
of  any  part  of  either  principal  or  interest  on  any  funded  debt  author- 
ized or  guaranteed  by  it,  and  whose  net  funded  debt  did  not  exceed 


380  FINANCING  AN  EMPIRE 

ten  per  cent  of  the  valuation  of  its  taxable  property.  The  act,  how- 
ever, did  not  permit  the  issue  of  emergency  currency  against  such 
bonds  unless  the  bank  already  had  outstanding  national  bank  notes 
secured  by  United  States  bonds  in  an  amount  equal  to  forty  per  cent 
of  its  capital.  This  provision  placed  a  great  handicap  in  the  way  of 
emergency  note  issues,  particularly  for  large  city  banks,  because 
United  States  bonds  were  extremely  difficult  to  secure.  In  fact,  dur- 
ing the  panic  of  1907  a  number  of  banks  had  attempted  to  relieve 
the  situation  by  borrowing  bonds  that  they  could  not  buy,  against 
which  to  issue  additional  currency,  but  under  no  circumstances  did 
they  find  themselves  able  to  draw  any  appreciable  amount  of  these 
securities  out  of  the  lock  boxes  of  conservative  investors  who  meant 
to  hold  them  permanently.  Consequently,  in  order  to  secure  enough 
United  States  bonds  to  make  notes  issued  against  them  equal  to  forty 
per  cent  of  the  capital  stock  of  larger  banks,  so  great  a  strain  would 
be  set  up  in  the  government  bond  market  as  to  make  the  price  of 
these  securities  prohibitive.  In  fact,  it  was  on  account  of  this  scarcity 
of  United  States  bonds  that  the  existing  banking  system  needed  over- 
hauling.   The  new  act  had  merely  aggravated  a  situation  already  bad. 

Banks  having  a  capital  stock  so  small  that  they  could  secure 
United  States  bonds  in  sufficient  quantity  to  meet  this  requirement 
of  the  act,  were  thereafter  permitted  to  issue  emergency  currency 
against  other  securities  up  to  an  amount  at  which  all  outstanding 
notes  would  equal  the  capital  and  surplus  of  the  bank. 

The  second  alternative  permitted  such  banks  to  issue  emergency 
currency  against  commercial  paper  instead  of  "other"  bonds,  but  in 
order  to  do  this  not  less  than  ten  banks  of  any  one  community  must 
unite  to  form  a  national  currency  association  with  which  the  collateral 
might  be  deposited.  This  done,  notes  might  be  issued  against  com- 
mercial paper  in  amounts  not  exceeding  thirty  per  cent  of  the  bank's 
unimpaired  capital  and  surplus.  Thus  it  will  be  seen  that,  while  the 
law  introduced  some  difficulties  before  additional  notes  could  be  is- 
sued, in  the  event  that  these  could  be  surmounted  an  ample  supply 
of  emergency  currency  might  be  produced.  But,  since  there  was  no 
way  of  increasing  the  amount  of  circulation  in  anticipation  of  a  panic 
or  during  periods  of  easy  money,  had  the  act  been  such  that  it  could 
have  operated  at  all,  it  must  have  been  at  best  a  measure  to  mitigate 
money  stringencies  only  after  the  event. 

Any  bank  wishing  to  use  its  commercial  assets  against  note  issues 
might  form  the  necessary  national  currency  association  only  on  con- 


HISTORY  OF  BANKING  IN  ILLINOIS  381 

dition  that  it  unite  with  not  less  than  ten  other  national  banks  in  its 
vicinity,  each  of  which  had  an  unimpaired  capital  and  a  surplus  of 
at  least  one-fifth  of  the  amount  of  its  capital.  In  the  aggregate  the 
banks  forming  such  an  association  might  not  have  less  than  five  mil- 
lion dollars  in  both  capital  and  surplus.  No  limit  was  set  on  the  ter- 
ritory to  be  included  in  the  association.  Later  events  showed  that 
some  were  organized  to  include  only  the  banks  of  a  certain  city, 
others  all  the  national  banks  of  their  state,  and  still  others  took  in 
the  institutions  of  near-by  cities  in  neighboring  states.  However, 
no  city  might  have  more  than  one  association  and  no  bank  might 
belong  to  more  than  one.  These  associations  were  to  be  governed  by 
one  representative  from  each  bank,  regardless  of  the  size  of  the  indi- 
vidual institutions  composing  the  association.  On  all  currency  issued 
the  member  banks  were  to  be  held  jointly  liable  in  proportion  to  their 
capital  stock,  therefore  this  government,  together  with  the  fact  that 
no  provision  was  made  for  the  withdrawal  of  a  bank  from  member- 
ship in  its  association,  made  the  formation  of  national  currency  asso- 
ciation so  distasteful  to  larger  national  banks  that  for  some  time  it 
looked  as  though  none  would  be  formed.  In  the  autumn,  several 
months  after  the  passage  of  the  Act,  the  banks  of  Washington,  D.  C, 
organized,  which  formed  the  only  national  currency  association  exist- 
ing for  a  period  of  almost  two  years.  Then,  upon  the  active  solicita- 
tion of  the  Secretary  of  the  Treasury  and  after  a  suitable  amend- 
ment of  the  Act,  a  number  of  others  were  started  in  the  larger  cities. 

In  order  to  prevent  the  banks  of  the  country  from  issuing  emer- 
gency currency  in  times  that  were  not  strenuous,  a  heavy  tax  imposed 
on  all  such  issues  was  so  graduated  as  to  become  more  burdensome 
the  longer  any  notes  were  left  outstanding.  This  tax  was  large 
enough  to  make  note  issues  prohibitive  in  extreme  need  as  well  as 
on  more  ordinary  occasions.  Even  in  1912,  when  interest  rates  in 
general  rose  from  twelve  to  twenty  per  cent,  no  appeal  was  made 
to  the  Aldrich-Yreeland  Act  for  relief,  although  in  the  autumn  of 
that  year  the  tension  of  currency  was  probably  no  less  extreme  than 
in  1907. 

The  high  tax  and  unjust  representation,  together  with  a  faulty 
definition  of  the  term  "commercial  paper,"  which  led  most  bankers 
to  believe  that  only  the  least  desirable  type  would  be  acceptable  as 
security  for  currency  issues,  brought  the  majority  of  the  financial 
men  of  the  country  to  the  belief  that,  since  emergency  currency 
could  be  issued  on  bonds  by  direct  and  individual  application  to  the 


:;v>  FINANCING  AN  EMPIRE 

Secretary  of  the  Treasury,  there  was  little  need  for  entering  into 
a  combination  which  was  almost  certain  to  result  in  no  good  and 
might  bring  about  a  considerable  amount  of  harm.  They  saw  no 
good  reason  for  pledging  their  assets  against  notes  issued  by  their 
frequently  less  well-managed  competitors  and  they  believed  that, 
unless  the  law  were  greatly  altered,  they  would  themselves  prefer 
to  delay  the  issue  of  an  unprofitable  emergency  currency  as  long 
as  possible. 

The  national  currency  association  of  Washington,  D.  C,  which 
had  been  organized  in  the  autumn  of  1908,  continued  to  be  the  only 
one  in  existence  until  July,  1910;  then  the  banks  of  New  York,  in 
response  to  the  constant  urgings  of  Secretary  MacVeagh,  who  was 
of  the  opinion  that,  so  long  as  the  country's  chief  banking  center 
refused  to  adopt  the  provision  of  the  Act,  no  other  section  would 
believe  it  worth  considering,  created,  with  the  approval  of  the  Treas- 
ury Department,  the  second  National  Currency  Association. 

It  appears  that  the  banks  of  Atlanta,  Georgia,  had  formed  an 
association  shortly  after  the  Aldrich-Vreeland  Act  first  went  into 
effect,  but  the  bankers  of  that  city  agreed  that  they  could  not  abide 
by  the  lack  of  provision  for  withdrawals  of  discontented  members. 
Therefore,  in  its  by-laws,  the  Atlanta  association  included  permission 
for  withdrawal.  The  Secretary  of  the  Treasury  opined  that  this 
was  contrary  to  the  intent  of  the  Act  and  therefore  refused  his 
approval.  Two  years  later  when  the  Secretary  was  making  more 
than  usual  efforts  to  secure  the  formation  of  currency  associations, 
the  bankers  of  Atlanta  made  a  number  of  efforts  to  adjust  their 
difficulties,  but  it  was  many  months  before  this  could  be  accomplished 
to  the  complete  satisfaction  of  the  Treasury  Department  which, 
meantime,  had  found  it  advisable  to  interpret  many  of  the  require- 
ments of  the  Act  in  ways  more  nearly  meeting  the  needs  of  bankers 
generally.  When  finally  the  Atlanta  association  was  admitted,  on 
August  18,  1910,  it  was  made  to  include  all  the  national  banks  of 
the  state  and  changed  its  name  to  the  Georgia  National  Currency 
Association. 

That  the  Secretary  of  the  Treasury  had  been  correct  in  his  belief 
that  other  sections  would  follow  the  decision  of  the  banks  of  Nen 
York  was  made  plain  when  the  banks  of  Philadelphia,  Boston,  and 
the  State  of  Louisiana  completed  the  organization  of  national  cur- 
rency associations  during  the  month  of  August,  1919.  By  the  end 
of  October  nine  associations  had   been  established    in  the  cities   of 


HISTORY  OF  BANKING  IN  ILLINOIS  -  383 

Washington,  Boston,  New  York,  Philadelphia,  St.  Louis,  and  Chi^ 
cago;  the  states  of  Georgia  and  Louisiana;  and  one  association  em- 
bracing the  cities  of  Minneapolis  and  St.  Paul. 

As  soon  as  he  had  secured  the  perfection  of  association  in  New 
York  and  those  larger  cities  of  the  east  particularly  influenced  by 
the  action  of  New  York,  Secretary  MaeVeagh  proceeded  to  devote 
his  efforts  to  establishing  such  associations  in  the  west  under  the 
leadership  of  Chicago. 

On  July  30,  1910,  Mr.  A.  Piatt  Andrew,  then  Assistant  Secre- 
tary of  the  Treasury,  addressed  a  letter  to  James  B.  Forgan,  chair- 
man of  the  Chicago  Clearing  House  Committee,  in  which  he  briefly 
and  rather  formally  suggested  that  it  might  be  to  Chicago's  interest 
to  form  a  currency  association.  As  a  result,  Mr.  Forgan  called  a 
meeting  of  the  Committee  on  August  2,  1910,  and  upon  its  con- 
clusion wrote  Mr.  Andrew  that  "the  Committee  not  seeing  its  way 
to  recommend  to  the  other  national  banks  of  the  city  the  formation 
of  a  National  Currency  Association  here,  has  postponed  action  in 
the  matter  pending  the  placing  of  the  obstacles  it  sees  in  the  way 
before  your  Department  and  asking  for  such  further  information 
and  advice  as  you  may  be  able  to  give  us  when  this  is  done." 

Meantime,  Secretary  Franklin  MaeVeagh,  who  was  a  Chicago 
man  and  well  known  to  Mr.  Forgan,  wrote  a  letter  which,  instead 
of  being  the  short  and  formal  invitation  received  from  Mr.  Andrew, 
was  nearly  three  pages  in  length  and  strenuously  urged  the  prompt 
formation  of  an  association  which,  he  said,  "would  do  no  harm,  even 
if  it  did  no  good." 

Mr.  Forgan  wrote  Mr.  Andrew  and  also  Secretary  MaeVeagh 
on  August  10,  enclosing  the  list  of  objections  which  the  Committee 
had  meantime  drawn  up.  In  beginning  his  letter,  Mr.  Forgan  said, 
"We  all  regret  that  under  our  present  understanding  of  the  law  we 
cannot  see  how  such  an  Association  could  be  organized  in  Chicago 
to  accomplish  its  object  under  existing  conditions  in  our  Clearing 
House  Association." 

The  memorandum  of  objection  enclosed  with  this  letter  pointed 
out  that,  unlike  other  cities,  Chicago's  Clearing  House  Association 
was  composed  largely  of  state  banks.  Of  its  total  membership  of 
seventeen  institutions,  only  six  were  national  banks,  ten  were  state 
banks,  and  one  was  a  foreign  organization.  Furthermore,  in  Chi- 
cago there  were  twenty-nine  non-member  banks  clearing  through 
members  and  of  these  only  five  were  national  banks.     Consequently, 


384  FINANCING  AN  EMPIRE 

were  a  national  currency  association  to  be  established  in  the  city, 
it  would  confine  the  note  issuing  privilege  in  emergencies  to  only 
six  of  seventeen  banks. 

The  memorandum  explained  further  that,  in  the  emergency  of 
1907  when  clearing  house  certificates  were  used  for  the  settlement 
of  clearing  house  balances,  state  banks  had  been  very  largely  the 
creditor  members  of  the  Clearing  House  Association.  This  was 
due  to  the  fact  that  the  state  banks  of  the  city  had  fewer  country 
bank  deposits  and  a  larger  proportion  of  savings  and  other  time 
deposits  subject  to  notice  of  withdrawal  than  did  the  national  banks. 
As  money  became  very  scarce,  these  state  institutions  availed  them- 
selves of  the  advantages  of  refusing  withdrawals  without  notice  and 
so  relieved  their  reserves  of  the  chance  of  sudden  depletion  such  as 
the  national  banks  experienced.  In  reviewing  this  situation,  the  com- 
mittee was  of  the  opinion  that  should  the  national  banks  form  a  cur- 
rency association,  thev  would  not  be  free  to  act  for  themselves  in  any 
subsequent  agreement  providing  for  the  settlement  of  clearing  house 
balances  in  the  non-interest  bearing  notes  of  the  association.  Since 
they  were  in  the  minority,  the  national  banks  would  have  to  get  the 
consent  and  secure  the  cooperation  of  the  large  majority  of  state 
banks  which  were  members  of  the  clearing  house.  Also,  because,  as 
the  creditor  members  of  the  Clearing  House  Association,  the  state 
banks  had  made  some  profit  in  the  way  of  interest  on  funds  extended 
to  the  association  in  previous  difficulties,  the  committee  doubted  that 
these  banks  would,  in  the  future,  be  willing  to  carry  national  currency 
association  notes  which  paid  no  interest. 

As  a  second  objection,  the  committee  offered  the  suggestion  that 
even  the  national  banks  of  Chicago  could  not  well  afford  to  enter  into 
an  agreement  to  settle  clearing  house  balances  in  Aldrich-Yreeland 
emergency  notes  of  large  denominations,  unless  a  collateral  agreement 
Mere  entered  into  by  all  the  clearing  house  banks  whereby,  so  long  as 
such  currency  should  be  necessary,  none  of  the  notes  would  be  pre- 
sented for  redemption.  The  report  said,  "If  active  redemption  of 
them  were  permitted,  national  banks  short  of  their  legal  cash  reserves 
could  hardly  be  expected  to  carry  them  voluntarily,  when  by  their 
redemption  they  could  increase  such  reserves.  Hanks  issuing  them 
and  liable  for  their  active  redemption  would  be  in  exactly  the  same 
position  in  regard  to  them  that  the  government  Treasury  Department 
was  in  1893  in  regard  to  the  greenbacks  when  President  Grover  Cleve- 


HISTORY  OF  BANKING  IN  ILLINOIS  -  385 

land  drew  public  attention  to  the  'endless  chain'  in  connection  with 
their  redemption." 

Likewise,  it  would  be  necessary  to  prevent  banks  from  shipping 
such  notes  to  their  correspondents  in  other  cities  who  might  send 
them  to  Washington  for  redemption.  Any  active  redemption  occur- 
ring Mould  constitute  a  menace  rather  than  a  protection  to  the  legal 
cash  reserves  of  national  banks  issuing  this  currency. 

As  a  third  objection,  the  committee  maintained  that,  since  the 
Act  permitted  national  banks  to  deal  individually  and  directly  with 
the  Comptroller  of  the  Currency  in  securing  authority  to  issue  addi- 
tional circulating  notes  against  the  deposit  of  bonds  other  than  those 
of  the  United  States,  the  only  apparent  benefit  to  be  derived  by  banks 
through  a  currency  association  would  be  the  doubtful  one  of  securing 
the  privilege  of  issuing  circulating  notes  based  on  commercial  paper. 
Under  the  law  only  that  j)aper  would  be  eligible  which  represented 
actual  commercial  transactions  bearing  the  names  of  at  least  two 
responsible  parties.  The  memorandum  pointed  out  that  the  loans  in 
national  banks  in  Chicago  fell  into  the  following  classifications: 

1.  Collateral  loans  against  elevator  receipts  for  grain,  warehouse 
receipts  for  provisions  or  other  merchandise,  bonds  and  stocks  of  a 
known  market  value. 

2.  Notes  of  corporations,  firms,  or  individuals  with  ample  capi- 
tal and  undoubted  credit  A\ho  borrowed  directly  from  the  banks  on 
their  single  name  paper. 

3.  Small  notes  representing  actual  commercial  transactions,  bear- 
ing the  names  of  at  least  tMro  parties  who  might  be  described  as  being 
"more  or  less"  responsible. 

The  third  classification  was  the  only  one  which  came  under  the 
requirements  of  the  Act  and,  since  such  notes  were  always  small  and 
of  somewhat  doubtful  value,  they  did  not  form  more  than  five  per 
cent  of  the  total  loans  of  the  banks.  In  addition  to  being  undesirable 
from  the  standpoint  of  security,  and  therefore  not  capable  of  passing 
the  judgment  of  any  except  the  banker  who  had  made  the  loan  and 
had  a  personal  acquaintance  with  the  individual  debtor,  and  because 
of  the  enormous  quantities  of  them  required  on  account  of  their  small 
denominations,  such  notes  would  be  extraordinarily  cumbersome  and 
impractical  for  use  as  a  basis  for  circulation. 

The  memorandum  gave  as  a  fourth  objection  that,  while  Aldrich- 
Vreeland  notes  of  large  denomination  would  be  useful  only  for  the 
settlement  of  clearing  house  balances,  the  small  ones  even  could  not 


386  FINANCING  AN  EMPIRE 

be  available  for  circulation  in  general  because  of  the  prohibitive  tax  on 
them.  The  committee  figured  that  to  meet  the  requirements  of  any 
conceivable  emergency  caused  by  a  lack  of  circulating  medium,  these 
notes  would  have  to  be  in  circulation  for  an  average  of  at  least  four 
months;  the  tax  on  this  length  of  time  would  average  six  and  one-half 
per  cent.  Then,  as  ten  per  cent  of  the  issuing  bank's  money  would  be 
tied  up  in  the  redemption  fund  at  Washington,  this  would  add  another 
one-half  of  one  per  cent  and  the  expense  connected  with  the  associa- 
tion would  bring  this  additional  cost  up  to  a  full  one  per  cent.  This, 
added  to  the  tax,  would  make  the  net  average  cost  for  four  months 
amount  to  seven  and  one-half  per  cent  a  year. 

Even  were  the  tax  not  prohibitive,  it  would  certainly  be  sufficient 
to  cause  alarm  among  the  creditors  of  banks  paying  it,  and  could  not 
reasonably  be  compared  with  the  seven  per  cent  interest  rate  formerly 
paid  on  clearing  house  certificates.  This  rate  had  been  earned  by  the 
banks  themselves  and  was  adjusted  among  them  in  accordance  with 
the  daily  fluctuations  of  clearing  house  balances.  Then,  the  banks 
had  only  to  pay  interest  from  day  to  day  on  such  accommodation  as 
they  might  require  over  night,  which,  on  a  monthly  average  where 
the  bank  was  one  day  a  debtor  and  another  a  creditor,  was  not  a 
serious  matter.  Furthermore,  in  Chicago  this  burden  had  been  dis- 
tributed among  both  national  and  state  banks  and,  although  the  state 
banks  were  largely  the  credit  institutions,  still  the  entire  cost  had 
not  fallen  on  the  minority  of  national  institutions,  as  would  be  the 
case  were  they  to  form  a  currency  association. 

In  conclusion,  the  memorandum  once  more  pointed  out  the  fact 
that  even  were  the  emergency  so  great  that  additional  currency  would 
be  used  by  bankers  at  any  cost  whatsoever,  under  the  requirements  of 
the  Act,  Chicago  banks  either  had  or  could  easily  secure  bonds  such 
as  were  required  for  the  individual  issue  of  currency,  but  that  they 
would  have  great  difficulty  in  finding  in  their  portfolios  any  commer- 
cial paper  that  would  satisfy  a  local  executive  committee  and  at  the 
same  time  conform  to  the  requirements  of  the  Act.  Therefore,  the 
committee  was  of  the  opinion  that  it  would  be  best  for  Chicago  to  con- 
tinue without  a  national  currency  association,  to  depend  in  future 
emergencies  on  clearing  house  certificates  for  settling  bank  balances, 
and,  should  the  need  be  severe,  individual  national  banks  might  issue 
such  Aldrich-Vreeland  currency  as  they  found  necessary  on  the  se- 
curity of  bonds  other  than  those  of  the  United  States.  "We  fully 
realize  the  weakness  of  our  present  system,"  the  memorandum  said, 


HISTORY  OF  BANKING  IX  ILLINOIS  -  387 

"and,  while  no  emergency  is  at  present  imminent,  we  would  be  just 
as  anxious  to  cooperate  with  the  Secretary  of  the  Treasury  in  putting 
the  law  into  operation  were  it  practical  to  do  so,  as  he  is  to  have  us." 

In  sending  a  copy  of  this  memorandum  to  Secretary  MacVeagh, 
Mr.  Forgan  said,  "We  all  regret  very  much  that  our  study  of  the 
law  makes  it  appear  to  us  to  be  quite  impractical  in  effecting  the 
purpose  for  which  it  was  framed.  If  we  have  misconstrued  it  or  if 
there  is  any  way  by  which  it  can  be  put  into  effect  that  will  remove 
or  overcome  the  serious  obstacles  we  have  raised  to  its  practical  work- 
ing, Ave  will  be  glad  to  be  further  advised.  We  are  open  to  convic- 
tion and  are  seriously  looking  for  a  way  in  which  we  can  cooperate 
with  you  in  the  use  of  the  provisions  of  the  law  if  there  is  any  prac- 
tical way  to  do  so.  You  know  us  all  very  well  and  must  know  that 
none  of  us  would  let  any  trivial  obstacles  stand  in  the  way  of  co- 
operating with  you  or  of  assisting  you  in  any  way  we  could  in  your 
official  duties.  We  really  believe  however  that  the  obstacles  we  have 
raised  are  so  serious  as  to  make  the  practical  working  of  a  National 
Currency  Association  impossible  under  the  conditions  existing  in  the 
Chicago  Clearing  House  Association,  and  we  hesitate  to  become  par- 
ties to  leading  the  community  to  rely  on  a  bridge  that  might  fail 
to  carry  them  over  the  emergency  for  which  purpose  it  was  built." 

On  August  2,  Mr.  Andrew  wrote  Mr.  Forgan  that,  while  a  com- 
plete reply  to  the  memorandum  of  the  Chicago  Clearing  House 
Committee  was  not  yet  ready,  he  wished  to  say  that  the  Treasury  De- 
partment had  interpreted  the  section  on  redemption  fund  to  mean 
that  no  more  than  an  amount  equivalent  to  five  per  cent  of  the  addi- 
tional notes  outstanding  would  be  required  for  this  fund  and  that  a 
circular  of  the  Department  issued  on  June  10,  1908.  had  created  an 
erroneous  impression  in  this  regard  when  it  led  bankers  all  over  the 
country  to  believe  that  ten  per  cent  would  be  required.  Mr.  Andrew 
continued  that  it  was  the  opinion  of  Secretary  MacVeagh  that,  since 
these  additional  notes  were  to  be  the  obligation  of  all  the  banks  of 
a  national  currency  association  and  to  be  secured  by  all  the  assets  of 
all  of  these  banks,  there  obviously  was  no  need  for  as  much  as  ten 
per  cent  being  held  in  the  redemption  fund  against  them. 

On  August  30,  Secretary  MacVeagh  wrote  Mr.  Forgan  a  nine 
page  letter  in  which  he  attempted  to  overcome  the  objections  of 
the  bankers  of  Chicago  on  the  ground  of  loyalty  to  the  best  good  of 
the  general  public.  The  Secretary  admitted  that  formation  of  an 
association  would  probably  not  be  a  profitable  venture  for  the  banks, 


388  FINANCING  AN  EMPIRE 

but  he  commended  it  as  a  probable  means  of  restoring  general  con- 
fidence at  a  time  when  confidence,  more  than  anything  else,  was 
needed  to  stem  the  tide  of  affairs.  This,  the  Secretary  maintained, 
was  not  accomplished  by  a  system  of  clearing  house  certificates  which 
enabled  the  banks  to  continue  their  business  only  in  a  limping  way. 
Aldrich-Vreeland  currency  would  enable  every  national  bank  to 
perform  its  full  duty,  which  was  to  meet  the  financial  requirements 
of  the  public  at  all  times  and  under  all  conditions.  Every  bank,  he 
believed,  should  regard  its  ability  to  serve  far  above  any  opportunity 
to  make  a  profit  and  should,  therefore,  accept  that  road  which  led 
to  greatest  service. 

In  addition  to  repeating  Mr.  Andrew's  explanation  of  the  ten 
per  cent  redemption  fund,  Secretary  MacVeagh  declared  that  so- 
called  "two  name"  commercial  paper  under  the  Act  was  meant  to 
include  only  the  highest  type  of  paper  and  that  which  the  bankers 
were  accustomed  to  refer  to  as  two-name  paper  would  not  be  eligible. 
Under  the  Act  the  two-name  requirement  was  met  by  the  names  of 
the  maker  of  the  note  and  the  bank  deposting  it  as  security  for  cur- 
rency. 

Mr.  MacVeagh  closed  his  letter  with  the  argument  he  had  used 
upon  New  York — the  need  for  a  leader  to  carry  out  the  wishes  of  the 
government  so  that  lesser  communities  might  follow.  Chicago's  re- 
fusal to  form  such  an  association,  he  said,  would  doubtless  restrict  and 
prevent  the  formation  of  enough  of  them  elsewhere  to  bring  about  a 
proper  cooperation  among  banks  of  the  nation.  Then  the  Secretary 
said,  "Certainly  no  harm  can  come  out  of  the  formation  of  this 
association.  The  association  is  not  obliged  to  take  out  emergency 
currency;  and  in  fact  I  do  not  expect  any  association  to  issue  any  of 
the  currency.  But  I  believe  the  country  at  large  is  entitled  to  the 
protection,  both  of  prevention  and  of  cure,  which  the  law  provides." 

After  receiving  these  letters,  Mr.  Forgan  called  a  meeting  of 
the  national  banks  of  the  Chicago  Clearing  House  Association  for 
September  9,  1910.  Those  sending  representatives  were  the  First 
National  Bank,  Fort  Dearborn  National,  National  Bank  of  the 
Republic,  Continental  and  Commercial  National.  Corn  Exchange 
National,  LaSalle  Street  National,  National  Produce  Bank,  Live 
Stock  Exchange  National,  Drovers  Deposit  National,  National  City 
Bank,  First  National  Bank  of  Englewood.  Only  the  Calumet  Na- 
tional Bank  was  not  represented  from  among  the  national  bank 
members  of  the  Chicago  Clearing  House  Association  at  that  time. 


HISTORY  OF  BANKING  IX  ILLINOIS 


389 


Mr.  Forgan  read  all  the  correspondence  he  had  had  with  the  Treasury 
Department  since  the  previous  July  30  and  then  recommended  that 
it  was  best  for  Chicago  to  form  a  national  currency  association.    Mr 
George  M.  Reynolds  of  the  Continental  and  Commercial  Xational 
Bank  explained  that  once  Chicago  had  taken  the  lead,  it  was  prob- 
able that  the  banks  of  Minneapolis,  St.  Louis,  and  Louisville  would 
follow,    and   that   therefore   the   formation   of  associations  in  those 
and  other  cities  depended  largely  on  what  Chicago  chose  to  do.    With 
this  responsibility  placed  upon  them,  the  bankers  decided  that  it  would 
be  best  to  form  a  national  currency  association  in  Chicago  and  imme- 
diately appointed  a  committee  consisting  of  Frank  O.  Wetmore  Vice- 
President,  First  Xational  Bank,  W.  T.  Fenton,  Vice-President   Na- 
tional Bank  of  the  Republic,  and  B.  C.  Sammons,  Vice-President, 
Corn  Exchange  Xational  Bank,  to  take  such  steps  as  might  be  neces- 
sary for  its  formation. 

At  a  second  meeting  held  October  14,  1910,  eleven  banks  were 
present  and  adopted  the  by-laws  which  the  committee  appointed  at  the 
farst  meeting  had  meantime  drawn  up.  All  the  national  banks  in  the 
C  learing  House  Association  signed  these  by-laws  and  thereby  became 
members  of  the  new  association. 

Thereafter,  for  almost  four  years,  no  business  was  transacted  by 
the  .National  Currency  Association  of  the  City  of  Chicago.  Annual 
meetings,  merely  a  matter  of  form  and  at  which  even  the  officers  of 
the  association  did  not  appear,  were  held  on  June  13.  1911  June  11 
1912.  June  10.  1913.  and  June  9.  1914.  Usually  six  banks  were  rep- 
resented at  these  meetings-that  probably  being  the  proper  number 
to  make  it  possible  to  conduct  any  business  coming  before  the  associa- 
tion— but  no  business  ever  came. 

The  first  special  meeting  to  be  called  after  the  organization  of 
the  .National  Currency  Association  of  the  City  of  Chicago  occurred 
on  August  3,  1914.  On  that  day  the  association  was  awakened  from 
its  long  sleep  and  for  some  time  thereafter  experienced  a  very  active 
existence.  Tins  special  session  was  called  to  consider  the  advisability 
ot  issuing  emergency  currency  under  the  Aldrich-Vreeland  Act  be- 
cause of  the  unprecedented  situation  brought  about  by  the  European 
u  ar.  IJns  time  ten  banks  were  represented  and  every  officer  of  the 
association  was  present.  In  short  order  the  meeting  decided  that  it 
would  be  wise  for  each  member  bank  to  subscribe  for  practically  its 
full  quota  of  additional  currency  allowed  under  the  Act  and  applica- 
tions were  taken  for  the  following  subscriptions : 

Vol.   I     —13  ■*- 


390  FINANCING  AN  EMPIRE 

Continental  and  Commercial  National  Bank.  .  .$21,000,000 

First  National  Bank 16,700,000 

Corn  Exchange  National  Bank 7,100,000 

National  Bank  of  the  Republic 2,200,000 

Fort  Dearborn  National  Bank 1,700,000 

National  City  Bank 2,000,000 

National  Produce  Bank •. 110,000 

First  National  Bank  of  Englewood 100,000 

Live  Stock  National  Bank 1,500,000 

Drovers  Deposit  National  Bank 700,000 


Total $53,110,000 

Since  the  association  now  had  real  work  to  do,  other  banks  in  and 
around  Chicago  became  interested  in  joining  and,  on  August  10,  only 
one  week  after  the  first  special  meeting,  a  second  was  called  and  three 
new  members  were  added — the  Washington  Park  National  Bank, 
Lawndale  National  Bank,  and  the  Central  Trust  Company.  Al- 
though the  last  was  not  a  national  bank,  under  the  ruling  of  the  Fed- 
eral Reserve  Act  which  had  recently  been  passed,  this  institution, 
because  it  had  become  a  member  of  the  Federal  Reserve  System,  was 
accorded  the  privileges  given  national  banks  under  the  Aldrich-Vree- 
land  Act. 

As  the  need  for  additional  currency  grew,  demand  for  member- 
ship in  national  currency  .associations  expanded  to  such  an  extent  that 
on  September  30,  1914,  at  the  request  of  the  Secretary  of  the  Treas- 
ury, the  articles  of  association  were  changed  to  permit  banks  outside 
of  Chicago  and  including  "that  portion  of  the  state  of  Illinois  in  the 
Chicago  Federal  Reserve  District  north  of  a  line  forming  the  northern 
boundary  of  Henderson,  Warren,  Knox,  Stark,  Marshall,  Livingston, 
and  Kankakee  Counties"  to  become  members  of  the  National  Cur- 
rency Association  of  the  City  of  Chicago.  On  October  28  the  First 
National  Bank  of  Joliet,  which  had  for  some  time  been  attempting 
to  form  a  new  national  currency  association  in  its  territory  but  with- 
out success,  joined  the  Chicago  group. 

During  the  war  period  the  Executive  Committee,  which  for  the 
first  three  years  of  the  life  of  the  association  had  scarcely  been  con- 
scious of  its  existence,  found  it  advisable  to  hold  almost  daily  meet- 
ings for  the  purpose  of  passing  upon  the  commercial  paper  offered  as 
security  against  additional  currency,  and  such  other  business  as  might 


HISTORY  OF  BANKING  IN  ILLINOIS  '         391 

come  before  the  association  in  this  period  of  crisis.  This  committee 
consisted  of  Ernest  A.  Hamill,  Chairman,  president  of  the  Corn 
Exchange  National  Bank;  James  B.  Forgan,  president  of  the  First 
National  Bank;  John  A.  Lynch,  president  of  the  National  Bank  of 
the  Republic;  George  M.  Reynolds,  president  of  the  Continental 
and  Commercial  National  Bank;  and  David  R.  Forgan,  president  of 
the  National  City  Bank.  The  officers  of  the  National  Currency 
Association,  all  of  whom,  with  the  single  exception  of  the  assistant 
secretary  whose  position  had  been  created  after  the  crisis  developed, 
had  served  continuously  since  the  formation  of  the  association  in 
1910,  were:  President,  George  M.  Reynolds;  Vice-President,  David 
R.  Forgan;  Secretary,  William  A.  Heath,  President,  Live  Stock 
Exchange  National  Bank;  Treasurer,  William  A.  Tilden,  President, 
Fort  Dearborn  National  Bank;  Assistant-Secretary,  William 
Byrnes. 

These  gentlemen  held  the  first  of  their  frequent  meetings  on 
August  4,  1914,  and  the  last  on  April  5,  1915.  During  this  time,  of 
the  total  authorized  amount  of  $53,110,000,  a  sum  of  $27,169,990  was 
actually  issued  in  Aldrich-Vreeland  currency.  The  issue  was  begun 
as  a  result  of  the  meeting  held  on  August  4;  the  first  currency  retire- 
ment was  made  on  October  23 ;  and  the  final  retirement  came  on  Feb- 
ruary 20,  1915.  Currency  issues  were  divided  among  the  various 
member  banks  as  follows: 

Continental  and  Commercial  National  Bank.  .  .$11,737,990 

First  National  Bank 8,000,000 

Corn  Exchange  National  Bank 2,400,000 

National  Bank  of  the  Republic 1,394,000 

Fort  Dearborn  National  Bank 910,000 

National  City  Bank 1,125,000 

National  Produce  Bank 100,000 

First  National  Bank  of  Englewood 100,000 

Live  Stock  National  Bank 785,000 

Drovers  Deposit  National  Bank 500,000 


Total   $27,051,990 

Chicago's  experience  with  the  formation  of  a  national  currency 
association  was  typical  of  that  elsewhere  in  the  country.  Everywhere 
the  provisions  of  the  Aldrich-Vreeland  Act  were  recognized  as  purely 


392  FINANCING  AX  EMPIRE 

experimental;  nowhere  were  they  satisfactory  to  any  element  and  as 
the  defective  character  of  the  language  of  the  act  came  to  be  appre- 
ciated, there  grew  an  ever  increasing  demand  for  something  of  a  more 
thorough  nature.  It  became  plain  that,  since  the  plan  lacked  cen- 
tralization, its  operation  could  not  be  uniform  nor  its  control  public; 
it  was  too  cautious  to  be  practicable  and  it  did  not  in  any  way  pro- 
vide a  means  for  protecting  the  gold  reserve  of  the  country.  In  rely- 
ing on  the  theory  that  the  remedy  for  a  money  stringency  depended 
upon  a  suitably  large  issue  of  bank  notes,  the  plan  neglected  the  more 
fundamental  fact  that  the  trouble  lay,  not  in  a  lack  of  a  circulating 
medium,  but  rather  in  the  shortcomings  of  our  credit  organization, 
and  that  it  was  credit,  rather  than  bank  issues,  which  was  inelastic. 
In  fact,  the  bill  had  been  drawn  up  with  so  many  safeguards  against 
the  overissue  of  additional  currency  that  none  was  issued  anywhere 
until  six  years  after  the  adoption  of  the  Act,  and  then  only  after 
drastic  changes  had  been  made  in  it.  Even  in  1914.  during  a  period 
of  stringency  fully  as  acute  as  that  suffered  in  1007  when,  had  the 
Aldrich-Vreeland  Act  been  practicable,  it  must  certainly  have  been 
put  to  use,  rather  than  avail  themselves  of  its  powers,  the  banks  of 
the  country  issued  clearing  house  loan  certificates  to  an  amount  of  as 
much  as  $109,185,000. 

During  1910  when  the  Treasury  Department  was  faced  with  the 
fact  that  banks  were  not  willing  to  accept  the  Aldrich-Vreeland  Act 
as  it  stood,  the  Secretary  of  the  Treasury,  as  was  seen  in  his  dealings 
with  Chicago,  found  it  the  better  part  of  wisdom  to  re-interpret  some 
of  the  provisions  of  the  Act  in  accordance  with  the  demands  of 
bankers.  Likewise,  after  a  long  struggle  with  Atlanta  and  other 
cities,  it  was  found  necessary  to  alter  the  ruling  which  provided  that 
no  bank  might  withdraw  from  its  currency  association.  On  Sep- 
tember 16,  1910,  the  Treasury  Department  ruled  that,  thenceforth, 
any  bank  might  retire  from  its  association,  provided  only  that  it  had 
no  unredeemed  additional  circulating  notes  outstanding  at  the  time 
and  that  it  obtained  the  unanimous  consent  of  the  board  of  managers 
of  its  association  and  that  of  the  Secretary  of  the  Treasury.  It  also 
ruled  that  such  withdrawal  would  not  affect  the  standing  of  the  asso- 
ciation except  in  cases  where  the  total  number  of  remaining  banks 
was  reduced  to  below  ten;  in  that  event  the  association  itself  must 
either  dissolve  or  secure  enough  new  members  to  fill  its  quota. 

Up  to  June  30,  1914,  which  was  the  date  on  which  the  life  of  the 
Aldrich-Vreeland  Act  was  to  end,  according  to  its  own  provisions, 


HISTORY  OF  BANKING  TX  ILLINOIS  -  393 

no  additional  currency  had  been  issued  under  it.  Since,  however,  the 
Federal  Reserve  Act  which,  after  almost  two  years  of  controversy, 
was  finally  agreed  upon  in  Congress  as  suited  to  the  permanent  needs 
of  the  country,  was  not  ready  for  efficient  operation  immediately  upon 
the  expiration  of  the  Aldrich-Vreeland  Act,  provision  was  made  for 
extending  the  life  of  the  Aldrich-Vreeland  Act  for  one  more  year,  or 
until  June  30,  191.5.  Also  the  tax  on  additional  currency,  from  five 
per  cent  for  the  first  month,  and  an  additional  one  per  cent  for  each 
succeeding  month,  until  a  rate  of  ten  per  cent  had  been  reached,  was 
reduced  to  only  three  per  cent  for  the  first  three  months  and  an  addi- 
tional one-half  of  one  per  cent  for  each  month  thereafter  until  a  total 
of  six  per  cent  had  been  reached.  In  August,  1914,  as  an  active  need 
for  emergency  currency  developed,  the  Aldrich-Vreeland  Act  was 
further  amended  so  that  the  total  issue  of  additional  currency  for  the 
whole  country,  previously  limited  to  one-half  billion,  might  amount 
to  approximately  $1,760,000,000.  Likewise  this  amendment  removed 
the  requirement  that  additional  currency  based  on  state  or  other 
bonds  and  commercial  paper  could  not  be  issued  until  the  bank  first 
had  outstanding  issues  against  securities  of  the  United  States  amount- 
ing to  at  least  forty  per  cent  of  its  capital,  and  raised  the  total  amount 
of  notes  that  might  be  issued  by  any  one  bank  to  one  hundred  and 
twenty-five  per  cent  of  its  total  capital  and  surplus  instead  of  one 
hundred  per  cent  as  formerly. 

It  was  not  until  these  changes  were  made  that  any  currency  was 
issued  under  the  Act,  either  through  national  currency  associations  or 
by  individual  banks  who  made  direct  application  to  the  Treasury  De- 
partment. The  additional  notes  were  put  into  circulation  amounting 
to  $381, .530,000,  every  one  of  which  was  subsequently  retired  before 
June  30,  1915. 


CHAPTER  XXI 
PERMANENT  NATIONAL  CURRENCY  REFORM 

The  work  of  the  National  Monetary  Commission — The  Aldrich  Plan — Carter  Glass  and 
the  Democratic  committee  on  banking  and  currency — Appearance  of  Illinois 
bankers  before  the  Senate  committee — The  Federal  Reserve  Act — Determining 
Federal  Reserve  District  boundaries — Appointing  a  representative  from  Chicago 
to  the  Federal  Reserve  Board. 

The  framers  of  the  Aldrich- Vreeland  Act  so  definitely  recognized 
its  provisions  as  being  purely  temporary  in  nature  and  were  so  well 
aware  of  the  tremendous  amount  of  study  required  to  draw  up  per- 
manent legislation  suited  to  the  needs  of  the  country,  as  to  include 
in  its  provisions  the  appointment  of  a  committee  to  make  proper  in- 
vestigations and  studies  toward  the  framing  of  suitable  future  acts. 

This  committee,  which  was  to  consist  of  nine  Senators  and  nine 
Representatives  with  Senator  Aldrich  of  Rhode  Island  as  chairman, 
and  Representative  Edward  R.  Vreeland  of  New  York  as  vice-chair- 
man came  to  be  known  as  the  National  Monetary  Commission.  These 
eighteen  men  were  not  appointed  primarily  because  of  their  propensi- 
ties for  producing  adequate  financial  reforms ;  rather  they  were  chosen 
that  all  factions  might  be  represented  and  that  the  work  might  be 
supervised  by  them  while  it  was  actually  carried  out  by  paid  experts 
of  national  prominence.  For  almost  four  years  the  Commission,  to- 
gether with  its  large  staff  of  experts,  conducted  investigations  of 
banking  systems  and  conditions,  of  currency,  credit,  and  all  other 
questions  bearing  on  their  problem,  in  so  thorough  a  manner  that 
the  findings,  both  at  home  and  abroad,  were  written  up  in  thirty- 
eight  volumes  which  in  themselves  comprised  a  most  excellent  eco- 
nomic library.  These  books  were  printed  as  congressional  documents 
and  were  distributed  without  cost  in  all  sections  of  the  country.  In 
this  way  the  Commission  was  able  to  exert  a  tremendous  educational 
influence  and  to  give  the  country  as  a  whole  the  benefit  of  the  find- 
ings of  its  experts. 

Illinois  contributed  one  of  the  most  prominent  men  secured  by 

394 


HISTORY  OF  BANKING  IN  ILLINOIS  ,        395 

the  Commission  for  its  staff  of  experts — J.  Laurence  Laughlin,  the 
well-known  economist  from  the  University  of  Chicago,  who  had  like- 
wise been  a  member  of  the  Monetary  Commission  of  1896  when 
thorough  investigation  was  made  into  the  silver  controversy.  In 
the  thirty-eight  volumes  are  also  to  be  found  two  documents  written 
by  Dr.  David  Kinley  of  the  University  of  Illinois — one  on  the  Inde- 
pendent Treasury  System  of  the  United  States  and  its  Relations  to 
the  Banks  of  the  Country — and  the  other  on  the  Use  of  Credit  In- 
struments in  Payment  in  the  United  States. 

In  the  educational  campaign  conducted  by  the  Commission  there 
was  included  a  great  number  of  lectures  covering  such  findings  of 
the  experts  as  might  be  of  public  interest.  The  first  of  these  was 
given  by  Senator  Aldrich  himself  in  Chicago  on  November  6,  1909. 
This  address  was  delivered  before  members  of  the  Commercial  Club 
at  a  banquet  in  the  Congress  Hotel,  and  preceded  a  series  of  lectures 
which  Mr.  Aldrich  gave  immediately  thereafter  in  the  cities  of  St. 
Louis,  Kansas  City,  Omaha,  Des  Moines,  Minneapolis,  St.  Paul, 
Milwaukee,  Detroit  and  New  York. 

The  exhaustive  study  sponsored  by  the  Commission  and  the  high 
type  of  economists  used  by  it,  together  with  the  accompanying  na- 
tion-wide educational  campaign,  soon  brought  expenditures  to  so 
high  a  point  that  much  criticism  wras  heard  in  Congress  and  resulted 
in  the  adoption  of  a  resolution  calling  for  a  report  by  a  fixed  date. 
This  decision  threw  the  Commission  into  turmoil.  Some  of  its  mem- 
bers resigned  saying  that  it  wrould  be  impossible  to  give  an  adequate 
report  by  the  date  set.  Those  who  remained  worked  diligently  and, 
late  in  1911,  adopted  a  plan  which  was  presented  to  Congress  in 
January,  1912. 

This  became  known  as  the  Aldrich  Plan,  although  it  was  not  the 
work  of  Senator  Aldrich  himself.  In  fact,  he  did  not  give  the  meas- 
ure more  than  half-hearted  support,  as  it  involved  the  elements  of 
central  banking  and  elastic  currency  to  both  of  which  he  had  long 
been  known  as  an  opponent.  It  is  probable  that  the  bill  wTas  pre- 
pared by,  or  under  the  direct  influence  of,  the  most  prominent  and 
best  advised  bankers  of  the  country.  Members  of  Congress  of  both 
parties  consistently  denied  that  they  had  had  much  to  do  with  it  and 
gave  it  little  attention.  The  plan  was  advertised  before  the  country 
where  it  had  the  indorsement  of  eminent  bankers  and  economists,  but 
as  Congress  could  not  be  aroused  from  its  indifference  the  bill  was 
never  debated  in  either  house  and  never  reached  a  vote. 


396  FINANCING  AN  EMPIRE 

By  now  there  had  occurred  such  a  rift  in  the  Republican  party 
that  Senator  Aldrich  and  many  other  strong  and  experienced  mem- 
bers retired  from  the  Senate  and  were  no  longer  in  a  position  to  sup- 
port his  Plan.  This  break  resulted  in  the  election  of  Woodrow  Wil- 
son to  the  Presidency  and  brought  in  a  Congress  which  was  strongly 
Democratic.  Although  the  campaign  conducted  in  behalf  of  the 
Aldrich  Bill  could  not  save  that  measure,  it  had  convinced  the  coun- 
try of  the  need  of  similar  banking  reform  and  paved  the  way  for 
another  constructive  piece  of  legislation  embodying  many  features 
of  the  Aldrich  Plan. 

Even  before  the  election,  Democratic  leaders  in  Congress,  in 
anticipation  of  a  victory  for  their  party,  felt  that  it  would  be  desir- 
able to  make  early  investigations  to  the  end  that  suitable  corrections 
for  the  currency  situation  might  be  formulated.  To  accomplish  this 
the  Banking  and  Currency  Committee  was  divided  into  two  sections; 
one,  under  the  leadership  of  Carter  Glass,  Senator  from  Virginia, 
was  to  recommend  legislation  designed  to  reform  the  American 
banking  system,  and  the  other,  under  Representative  Arsene  P. 
Pujo  of  Louisiana,  to  propose  means  for  curbing  the  power  of  the 
"money  trust." 

The  committee  under  Mr.  Glass  made  a  survey  of  all  the  reforma- 
tive legislation  that  had  been  proposed  since  the  crisis  of  1893,  and 
then  drafted  a  bill  which,  in  the  fall  of  1912,  was  presented  to  Pres- 
ident-elect Wilson.  Mr.  Wilson  approved  the  measure  as  com- 
pletely covering  the  reforms  needed  but,  as  it  was  desired  not  to 
introduce  the  bill  until  the  new  administration  had  gone  into  office, 
it  was  subjected  to  public  hearings  instead  so  that  still  further  sug- 
gestions might  be  secured  and  the  bill  rounded  out  and  perfected 
insofar  as  possible  before  its  presentation. 

President  Wilson,  upon  taking  office,  became  most  insistent  that 
Congress  lose  no  time  in  taking  action  on  the  proposed  Glass  Bill. 
Then,  as  soon  as  it  was  understood  that  the  President  meant  to  force 
action  in  an  aggressive  manner,  the  whole  country  joined  in  the  dis- 
cussion and  the  best  minds  of  the  nation  suggested  additions  and 
subtractions  until  the  law  as  finally  enacted  was  an  evolution  of 
deep  investigation  and  lengthy  discussion. 

When  the  new  Congress  assembled  in  December,  1912,  the 
House  Committee  on  Banking  and  Currency  took  up  the  work  ap- 
proximately where  the  National  Monetary  Commission  had  left  off 
and   conducted  hearings  and   investigations  throughout  the  winter. 


HISTORY  OF  BANKING  IN  ILLINOIS  ,        397 

In  the  autumn  of  1913  the  Senate  Committee  on  Banking  and  Cur- 
rency conducted  special  hearings  which  have  been  reported  in  detail 
in  a  document  comprising  three  large  volumes.  Shortly  before  this 
hearing  the  American  Bankers'  Association  held  a  conference  in  Chi- 
cago and  from  this  sent  a  number  of  bankers  under  the  leadership 
of  James  B.  Forgan,  then  President  of  the  First  National  Bank  of 
Chicago,  to  Washington  to  bring  the  results  of  their  deliberations 
before  the  Senate  Committee.  Mr.  Forgan's  group  was  carefully 
chosen  so  that  it  included  prominent  bankers  from  all  sections  of  the 
the  country,  each  of  whom  was  prepared  to  talk  on  some  one  phase 
of  the  proposed  bill  and  give  constructive  suggestions  for  its  im- 
provement. These  began  their  testimony  in  Washington  on  Tues- 
day, September  2,  1913. 

Mr.  Forgan  was  the  first  speaker  and  chose  to  suggest  that  one 
central  bank  with  an  unlimited  number  of  branches  be  established 
instead  of  the  twelve  individual  institutions  prescribed  by  the  Glass 
Bill — later  known  as  the  Federal  Reserve  Act.  Mr.  Forgan's  con- 
tention was.  that  if  all  the  gold  of  the  country  were  gathered  into 
one  place,  there  need  be  no  further  loss  of  confidence  because  a  large 
proportion  of  that  gold  was  being  used  in  any  one  section.  He 
argued  that  with  twelve  individual  banks  the  old  custom  of  hoarding 
currency  would  not  be  destroyed  but  only  lessened  through  its  con- 
centration in  twelve  instead  of  hundreds  of  individual  banks.  But, 
he  continued,  if  the  country  could  not  be  brought  to  agree  to  a  cen- 
tral banking  institution,  the  danger  of  hoarding  funds  in  any  one 
section  should  be  minimized  to  the  greatest  possible  extent  by  creat- 
ing the  smallest  possible  number  of  individual  reserve  banks.  Mr. 
Forgan  expressed  the  opinion  that  under  no  circumstances  should 
the  number  of  such  institutions  exceed  five  for  the  whole  country. 

When  he  had  finished,  one  after  another  Mr.  Forgan  introduced 
the  bankers  who  were  supporting  his  arguments  and  each  one  was 
questioned  until  the  Senate  Committee  had  become  satisfied  on  the 
point  he  had  come  to  make.  It  was  not  until  two  days  after  Mr. 
Forgan  opened  the  arguments  that  it  became  the  turn  of  a  second 
Chicago  banker,  George  M.  Reynolds,  then  President  of  the  Conti- 
nental and  Commercial  Banks,  to  testify.  Mr.  Reynolds  urged  that 
the  proposed  Federal  Reserve  System  should  include  state  banks 
as  well  as  those  with  national  charters  in  a  way  which  would  make 
membership  desirable  for  both  but  compulsory  for  neither.  Mr. 
Reynolds'  long  experience  as  a  banker,  both  in  a  small  town  and 


398  FINANCING  AN  EMPIRE 

in  one  of  Chicago's  largest  institutions,  was  such  that  he  could  con- 
tribute much  of  value  to  the  discussions  and  he  was  recalled  to  the 
witness  stand  time  and  again  during  the  days  of  the  hearing. 

The  third  representative  from  Chicago  to  be  introduced  by  Mr. 
Forgan  was  E.  D.  Hulbert,  then  Vice  President  of  the  Merchants 
Loan  and  Trust  Company,  who  supported  Mr.  Reynolds  in  his  con- 
tention that  a  system  which  represented  the  entire  country  and  was 
intended  to  correct  fundamental  monetary  and  credit  difficulties, 
should  include  all  the  banking  institutions  of  the  country,  both  state 
and  national.  Mr.  Hulbert  also  offered  the  objection  that  the  pro- 
posed law,  as  it  then  stood,  made  it  possible  for  the  reserve  banks 
to  go  into  the  market  as  competitors  against  their  own  member  banks 
which  might  easily  create  a  situation  both  unfair  and  distasteful  to 
member  banks. 

During  the  period  when  these  hearings  were  going  on,  the  Illi- 
nois Bankers'  Association  met  at  Quincy  in  the  largest  convention 
ever  held  up  to  that  time  by  any  state  bankers'  association.  This 
unprecedented  attendance  was  doubtless  due  in  large  part  to  inter- 
est in  the  pending  banking  legislation.  It  was  agreed  that,  since 
Chicago  bankers  were  being  called  upon  to  give  their  views  of  the 
proposed  law,  it  might  be  well  for  the  Illinois  Bankers'  Association 
to  send  to  Washington  a  delegation  representative  of  down-state 
country  bankers  who  likewise  would  be  affected  by  whatever  deci- 
sion Congress  might  make.  Judge  S.  B.  Montgomery  of  Quincy, 
who  was  elected  President  of  the  Association,  chose  a  committee, 
representative  of  various  sections  of  the  state,  consisting  of  William 
George,  president  of  the  Old  Second  National  Bank,  Aurora;  B.  F. 
Harris,  vice-president  of  the  First  National  Bank,  Champaign; 
John  M.  Crebs,  president  of  the  National  Bank  of  Carmi;  H.  D. 
Sexton,  president  of  the  Southern  Illinois  National  Bank,  East  St. 
Louis;  Ashe  V.  Cox,  president  of  the  Orchard  City  Bank,  a  private 
bank  located  at  Xenia;  William  C.  White,  president  of  the  Illinois 
National  Bank  of  Peoria;  and  J.  S.  Aisthorpe,  president  of  the  First 
Bank  and  Trust  Company  of  Cairo.  These  gentlemen  went  to 
Washington  where  they  appeared  before  the  Senate  Committee  on 
Banking  and  Currency,  each  talking  on  a  certain  phase  of  the  pro- 
posed law,  much  as  Mr.  Forgan 's  national  group  had  done.  In  addi- 
tion to  suggesting  a  number  of  minor  changes  in  the  law,  these  men 
on  the  whole  supported  the  conditions  already  put  forth  by  the  Chi- 


HISTORY  OF  BANKING  IN  ILLINOIS  -         399 

cago  representatives  of  the  American  Bankers'  Association  confer- 
ence. 

The  only  other  representative  from  Illinois  who  spoke  before 
the  Senate  Committee  on  Banking  and  Currency  was  Harry  A. 
Wheeler,  vice-president  of  the  Union  Trust  Company  of  Chicago  and 
then  president  of  the  Chamber  of  Commerce  of  the  United  States. 
Mr.  Wheeler  spoke  at  length  as  a  representative  of  the  Chamber  of 
Commerce  and  confined  his  remarks  to  the  viewpoint  of  that  organ- 
ization. 

The  bill  on  which  these  hearings  were  made  had  passed  the  House 
on  September  18,  1913.  It  was  ratified  by  the  Senate  on  December 
23  and  became  a  law,  after  having  been  once  again  referred  to  a  con- 
ference committe  of  the  two  houses  on  the  disagreeing  amendments 
which  had  developed  as  a  result  of  the  hearings.  Thus,  just  fifty 
years  after  the  enactment  of  the  National  Bank  Act,  there  was 
passed  the  most  constructive  piece  of  banking  legislation  since  the 
Civil  War  and  one  destined  to  transform  American  banking 
methods. 

Since  the  Federal  Reserve  Act  was  passed  in  a  comparatively 
short  length  of  time  by  a  new  and  inexperienced  Congress,  many 
held  that  it  would  wreck  the  national  banking  system,  if  not  the 
country  itself.  However,  when  time  had  permitted  a  study  of  the 
Act,  as  well  as  a  demonstration  of  its  powers,  it  became  evident  that 
an  extraordinary  piece  of  legislation  had  been  produced.  Then  prac- 
tically all  parties  rallied  to  its  support  and  before  long  the  Act  was 
obviously  one  of  the  wonders  of  American  legislation.  It  is  not 
often  that  principles  so  scientifically  developed  are  so  admirably 
incorporated  into  law,  but  in  the  case  of  the  Federal  Reserve  Act  it 
must  be  remembered  that  a  rather  hastily  produced  law  was  in  reality 
the  outgrowth  of  studies  and  discussions  covering  many  years  of 
time. 

The  Federal  Reserve  Act  was  passed  in  December,  1913.  Early 
in  January,  1914,  the  national  banks  of  Chicago  held  a  meeting  at 
which  they  voted  unanimously  to  join  the  new  Federal  Reserve  Sys- 
tem. Likewise,  the  Central  Trust  Company  of  Illinois  announced 
its  decision  to  enter  the  System,  while  a  large  number  of  the  more 
prominent  state  banks  were  seriously  considering  the  matter.  This 
was  before  the  System  had  been  put  into  actual  operation  and  before 
it  was  even  known  just  where  Federal  Reserve  banks  would  be  lo- 
cated or  what  territories  the  districts  might  include. 


400  FINANCING  AN  EMPIRE 

Under  the  new  Act  a  committee,  consisting  of  the  Secretary  of 
the  Treasury,  the  Secretary  of  Agriculture,  and  the  Comptroller  of 
the  Currency,  was  appointed  to  learn  the  views  of  bankers  and  busi- 
ness men  and  to  determine  the  best  possible  locations  for  the  sev- 
eral districts  and  banks.  This  committee  made  a  tour  of  fifteen 
cities — New  York,  Boston,  Chicago,  St.  Louis,  Denver,  Seattle, 
Portland  (Oregon),  San  Francisco,  Los  Angeles,  Houston  (Texas), 
New  Orleans,  Atlanta,  Cincinnati,  Cleveland,  and  Kansas  City 
(Missouri).  Upon  completion  of  this  tour,  the  members  of  the  com- 
mittee held  hearings  on  the  subject  of  locations  in  Chicago,  St.  Louis, 
and  Kansas  City.  The  meeting  at  Chicago  was  held  on  January  19, 
1914.  A  number  of  bankers  appeared,  but  the  most  prominent 
spokesmen  were  James  R.  Forgan  of  the  First  National  Bank  and 
George  M.  Reynolds  of  the  Continental  and  Commercial  Banks. 
Each  of  these  men  put  up  a  strong  plea  for  the  establishment  of  a 
Federal  Reserve  Bank  at  Chicago,  and  Mr.  Forgan  showed  that 
from  the  outset  there  would  be  nine  national  banks  in  that  city  con- 
tributing $20,707,000  in  deposits  to  the  System  and  $4,143,000  to 
its  capital.  If  the  district  were  to  include  all  of  the  state  of  Illinois 
there  would  be  an  additional  450  national  banks  with  $9,046,000  in 
deposits  and  $3,100,000  in  capital,  so  that,  even  were  the  Chicago 
district  confined  to  the  state  of  Illinois,  it  would  have  459  national 
banks  with  $29,753,000  in  deposits  and  $7,243,000  in  capital  and 
this  would  in  all  probability  be  added  to  by  a  similar  contribution  on 
the  part  of  state  banking  institutions. 

Mr.  Forgan  next  urged  that  the  Chicago  district  definitely  in- 
clude all  of  the  states  of  Illinois  and  Indiana,  while  he  hoped  that  it 
might  also  take  in  Nebraska,  Minnesota,  North  and  South  Dakota, 
and  the  eastern  part  of  Ohio.  Thereupon  Secretary  of  the  Treasury 
McAdoo  rather  humorously  pointed  out  that  were  the  Chicago  dis- 
trict to  be  given  all  Mr.  Forgan  asked  for  it,  it  would  include  a 
quarter  of  all  available  banking  capital  in  the  country.  Then,  he 
said,  that  since  New  York  had  been  similarly  greedy  and  expected 
to  have  approximately  one-half  of  the  country's  banking  capital,  the 
two  cities  would  divide  three-quarters  of  the  whole  between  them, 
leaving  only  one-fourth  for  the  remaining  Federal  Reserve  banks 
which,  under  the  provisions  of  the  Act,  might  not  be  less  than  six  in 
number. 

At  this  Mr.  Reynolds  rose  to  support  a  previous  suggestion  made 
by  Mr.  Forgan  in  which  he  urged  that  Federal  Reserve  banks  be 


HISTORY  OF  BANKING  IN  ILLINOIS  '         401 

located  in  the  cities  of  New  York,  Chicago,  Boston,  San  Francisco, 
St.  Paul  or  Minneapolis,  St.  Louis,  Kansas  City,  and  Baltimore  or 
Philadelphia.  When  the  Reserve  bank  cities  were  finally  settled 
upon,  the  suggestions  of  Mr.  Forgan  and  Mr.  Reynolds  in  this  re- 
gard were  taken  and  in  addition  to  the  cities  named  by  them  were 
included  Cleveland,  Richmond,  Atlanta,  and  Dallas,  thus  creating 
the  maximum  number  of  Reserve  Bank  cities  provided  for  in  the 
Act  which  stated  that  there  must  not  be  less  than  eight  and  might 
not  be  more  than  twelve.  On  the  two  alternatives  included  in  the 
list  presented  by  the  bankers  from  Chicago,  Minneapolis  was  even- 
tually chosen  as  preferable  to  St.  Paul,  and  Philadelphia  was  deemed 
a  more  suitable  location  than  Baltimore. 

Among  his  first  choice  for  the  Board  of  Directors  of  the  new  Fed- 
eral Reserve  banks,  President  Wilson  selected  H.  A.  Wheeler,  vice- 
president  of  the  Union  Trust  Company  of  Chicago.  When  the  an- 
nouncement of  this  choice  was  made,  bankers  throughout  the  country 
gave  their  approval,  as  Mr.  Wheeler  was  known  to  be  a  man  of  wide 
and  valuable  experience  and  of  character  and  attainments  exactly 
suited  to  one  in  so  important  a  position.  Mr.  Wheeler,  however,  did 
not  feel  that  he  could  accept  this  honor  and  in  his  stead  Mr.  Wilson 
chose  to  appoint  Thomas  D.  Jones,  an  attorney  and  director  on  the 
boards  of  numerous  corporations.  Mr.  Jones  was  likewise  from  Chi- 
cago and,  while  his  qualifications  were  such  as  to  indicate  that  the 
President  had  chosen  wisely,  he  was  not  as  well  known  as  was  Mr. 
Wheeler;  consequently,  many  assumed  that  he  was  nothing  more 
than  a  personal  friend  of  the  President  and  had  received  his  appoint- 
ment solely  on  that  account.  Those  aggressive  enough  to  look  up 
the  qualifications  of  Mr.  Jones  found  that  he  was  on  the  board  of 
directors  of  the  International  Harvester  Company,  then  being  pros- 
ecuted by  the  Department  of  Justice,  which  was  taken  by  a  certain 
faction  as  being  sufficient  reason  for  keeping  the  Chicago  appointee 
off  of  the  Federal  Reserve  Board.  As  a  result,  when  the  President 
sent  his  recommendations  to  the  Senate  and  learned  that  that  body 
was  objecting  to  the  appointment  of  Mr.  Jones,  Mr.  Wilson  dis- 
abused the  minds  of  the  objectors  in  a  letter  addressed  to  Senator 
Owen,  chairman  of  the  Senate  Committee  on  Banking  and  Cur- 
rency, in  which  he  explained  Mr.  Jones'  connection  with  the  Inter- 
national Harvester  Company  as  follows: 

"His  connection  with  the  Harvester  Company  is  this:  He  owns 
one  share,  and  only  one  share,  of  stock  in  the  company  which  he 


402  FINANCING  AN  EMPIRE 

purchased  to  qualify  as  a  director.  He  went  on  to  the  board  of  the 
Harvester  Company  for  the  purpose  of  assisting  to  withdraw  it  from 
the  control  which  had  led  it  into  the  activities  and  practices  which 
have  brought  it  under  the  criticism  of  the  law  officials  of  the  Gov- 
ernment and  has  been  very  effective  in  that  capacity.  His  connec- 
tion with  those  acts  and  practices  is  absolutely  nil." 

Even  with  this  especial  urging  on  the  part  of  the  President,  how- 
ever, the  appointment  of  Mr.  Jones  was  not  received  with  any  great 
enthusiasm  by  the  Senate  and  finally  the  President  withdrew  his 
name  at  Mr.  Jones'  own  request.  Mr.  Frederick  A.  Delano  of  Chi- 
cago next  became  Mr.  Wilson's  candidate  for  the  place.  Mr.  Delano 
had  had  an  honorable  record  in  connection  with  various  railroad  enter- 
prises and  at  one  time  had  been  a  member  of  the  Industrial  Rela- 
tions Committee  which  had  previously  been  named  by  the  President. 
His  qualifications  met  with  the  approval  of  the  Senate  and  he  there- 
fore became  Chicago's  representative  on  the  Federal  Reserve  Board. 

COMPARISON   ON   THE   PRINCIPAL  FEATURES   OF 

THE  ALDRICH  PLAN  WITH  THOSE  OF  THE 

FEDERAL  RESERVE  SYSTEM 

Aldrich  Plan  Federal  Keserve  Act 

National  Reserve  Association  es-  Twelve  Federal  Reserve  Banks 
tablished  for  a  period  of  fifty  established  for  a  period  of  twen- 
years.  ty  years. 

Association's  head  office  to  be  lo-  Twelve  individual  banks  to  be 
cated  in  Washington.  governed  by  the  Federal  Reserve 

Board  located  at  Washington. 

Fifteen  branches  to  be  estab-  Twelve  banks  to  be  established, 
lished  representing  fifteen  dis-  each  serving  one  of  the  twelve 
tricts  of  the  country.  These  districts  into  which  the  country 
branches  not  to  have  any  capital  is  divided.  Each  bank  to  have  a 
of  their  own.  capital  of  not  less  than  four  mil- 

lion dollars. 

All   national   banks   eligible   for  All    national   banks   required   to 

membership  and  such  state  bunks  join   the    system.      Other  banks 

and   trust  companies  as  comply  permitted  to  join  provided  they 

with  the  requirements  of  the  plan,  will  comply  with  the  requirements 

No  bank  to  be  required  to  be-  of  the  Act. 
come  a  member. 


HISTORY  OF  BANKING  IN  ILLINOIS 


403 


Aldrich  Plan 

Capital  stock  of  the  National  Re- 
serve Association  to  be  owned  by 
its  member  banks. 

Each  member  to  subscribe  for 
stock  up  to  twenty  per  cent  of 
its  paid-in  and  unimpaired  capi- 
tal. One-half  of  this  to  be  paid 
immediately  and  the  remainder 
subject  to  call. 


The  Association  to  begin  opera- 
tions when  its  paid-in  capital 
amounted  to  $100,000,000. 

Subscribing  banks  in  each  of  the 
fifteen  districts  to  be  further 
grouped  into  local  associations  of 
not  less  than  ten  banks  each,  with 
an  aggregate  capital  and  surplus 
of  not  less  than  $5,000,000.  Each 
local  association  to  have  a  board 
of  directors  chosen  by  the  mem- 
ber banks. 

A  board  of  directors  for  each  of 
the  fifteen  branches  to  consist  of 
twelve  members— ten  to  be  chosen 
by  the  local  associations  and  two 
by  the  board  itself. 


The  National  Reserve  Associa- 
tion to  have  forty-six  members 
on  its  board— thirty-nine  chosen 
by  the  branches  and  the  remain- 
ing seven  to  consist  of  the  Gov- 
ernor,   two   Deputy    Governors, 


Federal  Eeserve  Act 

Capital  stock  of  each  of  the 
twelve  Federal  Reserve  banks  to 
be  owned  by  their  member  banks. 

Each  member  to  subscribe  for 
stock  to  an  amount  equal  to  six 
per  cent  of  its  paid-up  capital  and 
surplus.  One-sixth  to  be  paid 
immediately,  one-sixth  in  three 
months,  one-sixth  in  six  months, 
and  the  remaining  fifty  per  cent 
subject  to  call. 

Xo  bank  to  commence  business 
until  it  had  a  subscribed  capital 
of  $4,000,000. 

Branches  might  be  established  by 
any  Federal  Reserve  Bank  with- 
in its  own  district.  No  local  as- 
sociation of  member  banks  pro- 
vided for. 


Each  Federal  Reserve  bank  to 
have  a  Board  of  Directors  con- 
sisting of  nine  members  holding 
office  for  three  years— three 
chosen  by  member  banks,  three 
representative  business  men  other 
than  bankers,  and  three  appoint- 
ed by  the  Federal  Reserve  Board. 

A  Federal  Reserve  Board  of 
eight  members  be  made  to  include 
the  Secretary  of  the  Treasury  and 
Comptroller  of  the  Currency  as 
members  ex-officio,  and  six  mem- 
bers appointed  by  the  President 


404 


FINANCING  AN  EMPIRE 


Aldrich  Plan 

the  Secretary  of  Agriculture, 
Secretary  of  Commerce  and  La- 
bor, Comptroller  of  the  Currency, 
and  Secretary  of  the  Treasury. 

The  thirty-nine  members  to  serve 
for  terms  of  three  years  each — 
one-third  retiring  each  year. 

The  governor  of  the  National  Re- 
serve Association  to  be  selected 
by  the  President  of  the  United 
States  from  a  list  of  three  names 
submitted  to  him  by  the  Board. 
His  term  shall  be  ten  years. 

The  two  deputy-governors  to  be 
chosen  directly  by  the  Board  and 
to  serve  for  terms  of  seven  years 
each. 

The  National  Reserve  Associa- 
tion to  have  powers  of  discount, 
making  loans  with  stock  exchange 
securities  as  collateral  to  sub- 
scriber banks,  investing  in  United 
States  bonds,  dealing  in  gold 
coin  and  bullion,  fixing  rates  of 
discount,  issuing  bank  notes,  hold- 
ing reserves  of  member  banks 
which  so  desire,  and  establishing 
foreign  agencies. 


Expenses  and  losses  of  local  as- 
sociations to  be  met  by  assess- 
ment of  member  banks  in  propor- 
tion to  ratio  which  their  capital 
and  surplus  bears  to  aggregate 
capital  and  surplus  of  all  mem- 
bers. 


Federal  Reserve  Act 

of  the  United  States  with  the  ad- 
vice and  consent  of  the  Senate. 
No  two  of  these  men  may  come 
from  any  one  Federal  Reserve 
District. 

Board  members  to  serve  for  ten 
years,  so  arranged  that  retire- 
ments occur  every  other  year. 

One  of  the  President's  six  ap- 
pointees shall  be  designated  by 
him  as  governor.  His  term  will, 
naturally,  be  ten  years. 


Federal  Reserve  banks  have 
powers  of  discounting  certain 
notes,  drafts,  and  bills  of  ex- 
change, receiving  deposits  from 
its  members,  buying  and  selling 
paper  on  the  open  market,  deal- 
ing in  gold  coin  or  bullion,  estab- 
lishing discount  rates,  receiving 
government  deposits,  issuing 
notes,  acting  as  fiscal  agent  of  the 
United  States  Government,  per- 
mitting national  banks  to  estab- 
lish branches  abroad. 

Shareholders  of  Federal  Reserve 
banks  responsible  for  debts  of 
their  bank  to  the  extent  of  their 
subscription  in  addition  to  the 
amount  subscribed. 


HISTORY  OF  BANKING  TX  ILLINOIS  '           405 

Aldrich  Plan  Federal  Reserve  Act 

From  net  earnings  dividends  of  Xet  earnings  of  the  Federal  Re- 
four  per  cent  to  be  paid,  half  of  serve  banks  are  to  apply  on  a  six 
what  remains  to  go  to  surplus  un-  per  cent  dividend  to  members  and 
til  it  amounts  to  twenty  per  cent  all  left  after  is  to  be  paid  to  the 
of  the  paid-in  capital.  Of  the  re-  United  States  as  a  franchise  tax, 
maining  amount,  half  to  go  to  the  except  that  each  bank  may  first 
United  States  and  half  to  the  build  up  a  surplus  fund  equal  to 
stockholders,  but  in  all  the  stock-  the  amount  of  capital  of  the  Fed- 
holders  not  to  receive  more  than  eral  Reserve  bank  and  thereafter 
five  per  cent.  After  these  re-  ten  per  cent  of  the  annual  net 
quirements  are  met  all  left  goes  earnings,  after  dividends,  may  be 
to  the  United  States.  devoted  to  this  surplus  fund. 

The   National   Reserve   Associa-  Capital    stock,    surplus,    and   in- 

tion,  its  branches,  and  the  local  come,  excepting  real  estate,  to  be 

associations   to   be  exempt   from  exempt  from  all  taxation, 
state  and  local   taxation,  except 
on  real  estate. 


CHAPTER  XXII 

EARLY     PERIOD     OF     THE     FEDERAL     RESERVE 

SYSTEM 

Chicago  meeting  of  the  American  Bankers  Association  group  on  currency  reform — 
Credit  for  origination  of  the  Federal  Reserve  Act  given  to  Woodrow  Wilson — Charles 
G.  Dawes  among  Chicago's  first  bankers  to  take  a  definite  stand  for  the  Federal 
Reserve  System — Opening  of  the  Federal  Reserve  Banks — Early  difficulties  with  and 
campaign  for  the  promotion  of  par  collection — Gold  Settlement  Fund — Redis- 
count in  g  operations — Review  of  conditions  surrounding  early  years  of  the  Federal 
Reserve  System — Illinois  divided  between  two  Federal  Reserve  districts — Quarters 
occupied  by  the  Federal  Reserve  Bank  of  Chicago — Plot  to  blow  up  the  bank — New 
building  of  the  Federal  Reserve  Bank  of  Chicago. 

Less  than  two  weeks  prior  to  the  time  the  committee  of  the  Amer- 
ican Bankers'  Association,  in  which  Chicago's  bankers,  James  B.  For- 
gan  and  George  M.  Reynolds,  played  so  important  a  part,  made  its 
recommendations  to  Congress  on  September  2,  1913,  that  same  group, 
consisting  of  representative  bankers  from  all  parts  of  the  country, 
held  a  preparatory  meeting  at  the  Hotel  La  Salle  in  Chicago.  This 
was  presided  over  by  A.  B.  Hepburn  of  New  York,  and  it  was  there 
made  plain  that  the  bankers  of  the  country  were  not  agreed  in  their 
opinions  as  to  just  what  would  constitute  a  workable  central  bank- 
ing system.  Each  speaker  had  very  definite  ideas  of  what  was  wrong 
with  the  proposed  bill,  but  the  only  point  of  agreement  among  them 
seemed  to  be  that  the  bill  as  it  then  stood  was  far  from  desirable  and 
that  if  passed  without  alteration  would  be  almost  certain  to  result 
in  economic  havoc. 

The  point  of  greatest  contention  seemed  to  be  the  clause  regard- 
ing the  proposed  powers  of  the  new  central  banking  institution  for 
note  issue.  There  was  a  strong  sentiment  for  a  bond-secured  currency 
on  the  part  of  some  present,  while  others  believed  that  the  country 
greatly  needed  the  innovation  of  an  elastic  circulation  based  on  cur- 
rent business  as  represented  in  available  commercial  paper.  Many 
felt  that  the  proposed  gold  reserve  to  be  held  against  such  temporary 
currency  was  far  from  adequate. 

406 


HISTORY  OF  BANKING  IN  ILLINOIS  -  407 

On  this  and  other  discussions,  Mr.  Forgan  proved  to  be  the  most 
staunch  of  the  conservatives.  Not  only  did  he  feel  that  the  note  issue 
clause  was  all  wrong,  but  said  that  the  bill  as  a  whole  was  so  bad  that 
it  could  not  result  in  any  good  and  urged  that  Congress  be  requested 
not  to  take  action  on  it  until  such  time  as  an  entirely  newr  one  could 
be  drawn  by  competent  bankers. 

George  M.  Reynolds,  president  of  the  Continental  and  Commer- 
cial Banks  of  Chicago,  and  Festus  J.  Wade,  president  of  the  Mer- 
cantile Trust  Company  of  St.  Louis,  were  outspoken  in  their  opin- 
ion that  currency  and  banking  reform  were  so  badly  needed  that  it 
was  the  better  part  of  wisdom  to  accept  that  which  could  be  secured 
as  a  start  to  a  reform  which  could  be  improved  upon  as  experience 
brought  the  weak  points  into  prominence.  Mr.  Wade  and  Mr.  Rey- 
nolds were  entirely  out  of  agreement  with  Mr.  Forgan  when  he  said 
of  the  bill:  "It  is  not  a  measure  of  expansion.  Rather  than  that  it 
is  one  of  contraction — the  most  damnable  contraction  that  the  coun- 
try has  ever  shown.    It  will  make  business  impossible." 

Charles  G.  Dawes,  then  president  of  the  Central  Trust  Company 
of  Illinois,  and  one-time  Comptroller  of  the  Currency,  likewise  dis- 
agreed with  Mr.  Forgan.  Having,  however,  long  been  known  as  an 
opponent  of  the  asset  currency  idea,  he  voiced  his  opinion  by  saying 
that  the  proj^osed  Act  meant  "damnable  expansion,  and  the  most  dan- 
gerous inflation  this  country  had  ever  experienced." 

The  session  lasted  two  days  before  an  agreement  could  be  reached 
and  recommendations  drawn  up  for  presentation  to  Congress.  What 
these  recommendations  were  has  already  been  recounted  in  a  previous 
chapter. 

Learning  that  the  Banking  and  Currency  Committee  of  the  Amer- 
ican Bankers'  Association  was  about  to  meet  in  Chicago,  Representa- 
tive Charles  N.  Fowler  of  New  Jersey,  who  for  years  had  been  Chair- 
man of  the  Banking  and  Currency  Committee  of  the  House  and  who 
had  in  that  capacity  introduced  bills  intended  to  effect  the  needed  re- 
form, traveled  to  Chicago  with  the  expectation  that  he  would  be  per- 
mitted to  talk  on  the  subject  of  the  proposed  Glass-Owen  Bill  before 
the  bankers.  Representative  Fowler  was  bitterly  opposed  to  the  pend- 
ing bill  and  hoped  that  the  bankers  might  be  brought  to  support  his 
views.  He  was,  however,  unanimously  denied  a  hearing  for,  as  the 
bankers  said,  action  and  not  talk  was  then  needed. 

Since,  in  recent  years,  now  that  the  Federal  Reserve  System  is  an 
accomplished  and  approved  fact,  there  has  arisen  a  great  deal  of  con- 


408  FINANCING  AN  EMPIRE 

troversy  over  placing  due  credit  for  the  original  enactment  of  legis- 
lation producing  the  most  satisfactory  banking  system  America  has 
ever  known,  it  is  interesting  to  recall  an  address  given  by  Edmund 
D.  Hulbert,  then  vice-president  of  the  Merchants  Loan  and  Trust 
Company  of  Chicago,  in  which  he  spoke  before  the  1918  convention 
of  the  American  Bankers'  Association  as  follows : 

"The  Federal  Reserve  Act  was,  of  course,  an  outgrowth  of  in- 
numerable plans  for  currency  reform,  but  it  is  not  generally  known 
that  it  was  Woodrow  Wilson  who  laid  out  the  ground  plan  for  the 
Act  and  that  there  was  never  any  fundamental  departure  from  his 
original  plan.  Mr.  Wilson  was  in  Chicago  shortly  before  his  first 
inauguration  and  at  that  time  he  outlined  to  a  Chicago  banker  his 
plan  for  a  reform  of  our  banking  system.  The  plan  as  then  disclosed 
was  fundamentally  the  same  as  the  Federal  Reserve  Act,  which  sub- 
sequently became  law.  The  machinery  was  much  the  same  as  that 
suggested  by  Professor  Laughlin  of  the  University  of  Chicago  as  a 
substitute  for  the  Aldrich  plan,  but  the  principles  involved  were,  of 
course,  entirely  different. 

"It  developed  at  this  interview  that  Mr.  Wilson  had  been  a  stu- 
dent of  finance  and  banking  for  years  before  he  was  thought  of  in 
connection  with  the  Presidency.  The  Chicago  banker,  however,  ex- 
pressed his  disapproval  of  the  plan  emphatically  on  the  ground  that 
the  compulsory  purchase  of  the  stock  of  the  Federal  Reserve  banks 
by  the  national  banks  would  be  an  unheard-of  exercise  of  arbitrary 
power  by  the  Federal  government  and  that  without  this  the  plan 
would  fall  to  the  ground,  as  it  was  too  unattractive  from  a  banking 
standpoint  to  lead  banks  to  join  the  system  voluntarily. 

"While  the  fundamentals  of  the  plan  were  never  departed  from, 
the  greatest  possible  credit  is  due  Congressman  Carter  Glass  of  Vir- 
ginia for  the  commercial  soundness  and  sanity  of  the  completed  Act. 
After  the  Act  was  passed,  some  financial  experts  said  it  was  a  miracle 
that  such  a  technically  sound  and  able  law  could  have  been  enacted 
by  Congress.  There  was  no  miracle  about  it,  unless  it  be  considered  a 
miracle  that  a  rather  obscure  Congress  of  no  great  experience  in  finan- 
cial matters  developed  an  almost  unerring  instinct  for  the  sound  and 
constructive  in  finance  and  an  unsurpassed  courage  to  withstand  the 
onslaughts  of  the  demagogue  and  doctrinaire. 

"Few  have  any  conception  of  the  determined  efforts  that  were 
made  to  get  untried  and  dangerous  schemes  into  the  bill  and  what 
it  cost  to  defeat  them.    Mr.  Glass  carried  this  fight  gallantly  to  a  fin- 


HISTORY  OF  BANKING  IN  ILLINOIS  '  409 

ish  and  collapsed  with  exhaustion  only  after  the  bill  became  a  law. 
The  Act  was  passed  in  November,  1913,  but  as  late  as  October  of  that 
year  the  Democrats  in  Congress  were  either  lukewarm  or  antagonistic 
to  it.  The  united  opposition  of  the  banks  of  the  country  as  expressed 
at  the  Chicago  conference  in  August  and  by  this  Association  at  its 
Boston  convention  in  October,  coupled  with  the  fierce  onslaught  of 
Elihu  Root  of  the  Senate,  had  their  effect  on  it  and  it  was  only  the 
iron  will  of  President  Wilson  that  brought  it  to  a  vote.  As  it  was, 
two  Democratic  Senators,  members  of  the  Currency  and  Banking 
Committee  which  had  charge  of  the  bill,  finally  refused  to  vote  for  it. 

"I  therefore  "wish  to  record  the  statement  that  to  Woodrow  Wil- 
son alone  is  due  the  credit  of  planning  the  Federal  Reserve  Act  and 
forcing  it  to  passage,  and  to  Carter  Glass  more  than  to  any  other  one 
man  is  due  the  credit  of  making  it  a  sound,  beneficent,  workable  law." 

As  has  been  shown,  the  most  prominent  bankers  of  Chicago  were 
among  those  who  fought  the  bill  the  hardest,  not  because  they  disap- 
proved of  such  legislation,  but  because  they  believed  the  defects  of 
this  bill  would  far  overbalance  its  many  excellent  points.  This  feeling 
prevailed  in  Chicago  for  some  time  after  the  Act  became  a  law  and 
even  as  late  as  January  9,  1915,  Charles  G.  Dawes,  then  president 
of  the  Central  Trust  Company  of  Illinois,  and  later  Vice-President 
of  the  United  States,  voiced  his  feelings  in  a  talk  entitled  "The  Dan- 
gers of  the  Federal  Reserve  Law  in  Its  Present  Form  and  How  It, 
Should  Be  Amended  to  Avoid  Them."  Mr.  Dawes  had  a  profound 
fear  of  the  possibilities  of  great  currency  inflation  under  the  Federal 
Reserve  Act.  He  had  long  been  known  as  a  strong  advocate  of  bond- 
secured  currency,  which  the  Federal  Reserve  Act  sought  to  supplant. 
It  was  readily  recalled  that  at  the  end  of  his  term  as  Comptroller  of 
the  Currency,  he  had  been  most  outspoken  in  his  opposition  to  cur- 
rency plans  suggested  about  that  time.  Nevertheless  and  in  spite  of 
all  these  expressions  and  firm  opinions,  Mr.  Dawes  had  gradually 
come  to  the  realization  that  conditions  had  changed  in  banking  as  well 
as  in  other  phases  of  the  economic  world  and,  as  a  result,  he  was  one 
of  the  first  of  Chicago's  opposition  to  shift  to  the  support  of  the  Fed- 
eral Reserve  Bank. 

When  Mr.  Dawes  announced  that  his  bank,  the  Central  Trust 
Company  of  Chicago,  had  taken  steps  to  become  the  first  state  bank 
of  any  size  in  the  middle  west,  if  not  in  the  whole  United  States,  to 
join  the  Federal  Reserve  System,  almost  immediately  the  attitude  of 
the  larger  bankers  of  the  city  changed  from  one  verging  on  hostility 


410  FINANCING  AN  EMPIRE 

to  a  willingness  to  give  the  new  system  a  trial.  Soon  the  two  largest 
national  banks  in  the  city,  the  First  National  and  the  Continental  and 
Commercial  National,  announced  their  intention  to  submit  to  the  Act, 
although,  as  has  been  shown  elsewhere,  the  presidents  of  both  of  these 
banks,  James  B.  Forgan  and  George  M.  Reynolds,  had  been  con- 
sistently opposed  to  a  number  of  the  requirements  of  the  new  Sys- 
tem, and  had  considered  some  objectionable  phases  so  important  as  to 
give  serious  consideration  to  the  abandonment  of  their  national  char- 
ters. However,  having  determined  to  support  the  Federal  Reserve 
System,  both  of  these  men  did  so  to  their  utmost,  and  not  only  did 
they  contribute  the  resources  of  their  banks,  but  each  of  them  con- 
sented to  act  upon  the  first  board  of  directors  for  the  Federal  Reserve 
Bank  of  Chicago.  Thus  they  gave  of  their  personal  ability  as  well 
as  the  support  of  their  banks,  and  were  of  great  assistance  in  making 
the  Federal  Reserve  System  worthy  not  only  of  their  approval  but 
of  every  thoughtful  banker  of  the  present  time. 

So  long  as  men  like  James  B.  Forgan,  George  M.  Reynolds,  and 
Charles  G.  Dawes  had  held  out  against  the  Federal  Reserve  System, 
it  naturally  followed  that  the  tide  of  banking  opinion  throughout  the 
entire  middle  west  had  followed  the  same  trend.  The  step  taken  by 
Mr.  Dawes  in  joining  his  bank  to  the  System  when  it  was  a  state 
institution  and  therefore  had  every  right  to  remain  outside,  did  much 
toward  swinging  the  thought  of  big  bankers  throughout  the  country 
to  the  System  and  started  a  shift  in  sentiment  among  both  national 
and  state  banks,  until  the  territory  surrounding  Chicago  reached  the 
point  where  it  was  giving  a  hearty  support,  deeply  gratifying  to  an 
institution  which  but  a  short  time  before  had  little  or  no  approval. 

The  Federal  Reserve  Bank  of  Chicago  formally  opened  on  No- 
vember 16,  1914.  At  first  such  business  as  came  to  it,  particularly 
along  discounting  lines,  was  from  larger  banks  in  Chicago  which,  in 
an  effort  to  show  a  spirit  of  cooperation,  sent  the  Federal  Reserve 
Bank  some  business  of  a  more  or  less  complimentary  nature.  Little 
came  that  was  a  direct  result  of  the  needs  of  the  time.  By  the  end  of 
the  year,  however,  banks  throughout  the  states  of  Iowa,  Illinois,  and 
Indiana  had  begun  to  use  the  discounting  privilege  to  some  extent 
because  of  local  emergencies  growing  out  of  an  epidemic  of  "hoof  and 
mouth  disease"  among  cattle.  By  the  autumn  of  1915,  even  before 
the  bank  was  a  year  old,  its  discounting  service  was  finding  an  impor- 
tant outlet  in  these  same  states  because  of  the  poor  and  unmarketable 
corn  crop  in  many  sections.     Between  the  opening  of  the  Federal 


HISTORY  OF  BANKING  IN  ILLINOIS  411 

Reserve  banks  and  the  end  of  the  year  1915,  one  hundred  Illinois 
banks,  the  greater  part  of  which  were  country  institutions,  availed 
themselves  of  the  discount  privilege.  Compared  with  the  total  sum 
of  $839,123,000  with  which  the  Federal  Reserve  Bank  of  Chicago 
accommodated  the  two  hundred  and  twenty-four  banks  in  the  State 
of  Illinois,  during  the  year  1925,  the  amount  loaned  the  one  hundred 
banks  in  1915  was  but  a  negligible  figure. 

Early  in  their  career  the  Federal  Reserve  banks  were  confronted 
with  the  problem  of  establishing  a  system  of  check  collection,  for  the 
Act  required  that  each  Federal  Reserve  bank  perform  the  functions 
of  a  clearing  house  for  its  members  if  so  directed  by  the  Federal  Re- 
serve Board.  The  Board  in  turn  was  authorized  to  clear  for  the  Fed- 
eral Reserve  banks  themselves.  Many  attempts  were  made  to  effect 
a  usable  scheme  for  such  a  clearing  system,  but  each  in  turn  met  with 
determined  opposition  from  country  and  city  banks  alike  in  all  parts 
of  the  country.  This  difficulty  grew  mainly  out  of  the  fact  that  it 
had  been  customary  to  make  exchange  charges  which  would  be  elim- 
inated by  the  Federal  Reserve  system  of  check  collection.  This  priv- 
ilege suddenly  became  very  precious  and  bankers  everywhere  main- 
tained that  the  Federal  Reserve  banks  were  attempting  to  take  away 
one  of  their  important  sources  of  profit. 

In  the  beginning  the  Federal  Reserve  banks  were  not  expressly 
authorized  to  accept  checks  for  collection  unless  they  were  drawn 
upon  member  banks  or  other  Federal  Reserve  banks.  Member  banks, 
however,  were  constantly  receiving  checks  upon  non-members  as  well 
as  members,  and  since  they  frequently  acted  as  agencies  through 
which  non-member  banks  collected  the  checks  which  they  received,  it 
soon  developed  that  were  the  Federal  reserve  banks  to  undertake  to 
collect  checks  on  members  only,  a  vast  majority  of  such  checks  would 
pass  through  the  Federal  Reserve  banks  while  those  on  non-mem- 
bers would  be  collected  through  agencies.  It  was  feared  that  were 
such  a  system  to  prevail  for  long,  a  great  injustice  would  be  worked 
on  member  banks  who  would  be  at  a  disadvantage  in  their  efforts  to 
retain  proper  reserves.  Because  of  this  situation,  Congress  in  1916 
and  1917,  amended  the  Federal  Reserve  Act  to  authorize  the  collec- 
tion of  checks  on  non-members  as  well  as  on  members.  The  amend- 
ment, however,  continued  to  require  that  all  checks  be  collected  by 
the  Federal  Reserve  banks  at  par,  for  it  was  plain  that  were  mem- 
ber banks  required  to  pay  their  checks  at  the  full  face  amount  while 
non-members  might  clear  through  the  Federal  Reserve  banks  at  less 


412  PENANCING  AN  EMPIRE 

than  par,  a  great  inequality  would  result.  Under  this  amendment  also 
all  member  banks  were  required  to  remit  to  the  Federal  Reserve  Bank 
of  Chicago  at  par  on  their  own  checks,  whereas  it  had  originally  been 
a  voluntary  matter. 

The  check  collection  system  of  the  Federal  Reserve  Bank  of  Chi- 
cago had  gone  into  operation  on  November  16,  1914,  the  day  the  bank 
opened  for  business.  This  service  then  consisted  of  taking  checks 
from  member  banks  for  immediate  credit,  provided  they  were  drawn 
on  member  banks  located  in  Chicago  and  the  seven  reserve  cities  of  the 
Seventh  district — these  seven  cities  then  were  Detroit,  Milwaukee, 
Indianapolis,  Des  Moines,  Davenport,  Cedar  Rapids  and  Peoria, 
which  was  not  then  a  reserve  city,  but  which  later  became  one.  On 
December  3,  1914,  the  service  was  enlarged  to  include  all  items  drawn 
on  member  banks  located  in  these  cities,  and  on  December  16  the 
Federal  Reserve  Bank  of  Chicago  began  taking  checks  drawn  upon 
all  of  the  Federal  Reserve  banks  for  immediate  credit.  As  early  as 
April  7,  1915,  member  banks  in  the  Seventh  district  were  advised  that 
a  voluntary  inter-district  collection  system  would  be  established  and 
that  items  would  be  received  for  immediate  credit  at  par  from  those 
banks  joining  it,  provided  they  were  drawn  upon  banks  which  were 
members  of  the  collection  system.  In  June  this  arrangement  went 
into  effect,  not  alone  in  the  Seventh  district,  but  throughout  the 
country. 

By  the  middle  of  June  the  Federal  Reserve  Bank  of  Chicago  be- 
gan receiving  items  from  member  banks  on  all  Chicago  clearing  house 
banks,  whether  or  not  they  had  joined  the  collection  system  and,  in 
addition,  checks  and  drafts  on  the  Federal  Reserve  Banks  of  Bos- 
ton, New  York,  Philadelphia,  and  St.  Louis  were  received  for  imme- 
diate credit,  except  when  the  amounts  exceeded  ten  thousand  dollars. 
In  that  case  the  Chicago  banks  reserved  the  right  to  receive  these 
items  at  the  market  rate  of  exchange  on  the  cities  from  which  they 
came. 

Almost  from  the  outset  the  development  of  the  check  collecting 
function  proved  to  be  one  of  the  most  difficult  problems  the  manage- 
ment of  the  Federal  Reserve  banks  had  to  reckon  with  and  the  sub- 
ject soon  became  a  source  of  bitter  controversy  which  in  other  districts 
became  the  cause  of  long-drawn-out  court  litigation. 

Although  gratifying  results  were  obtained  after  the  amendments 
of  1916  and  1917,  there  were  still  large  numbers  of  non-member  banks 
who  insisted  upon  maintaining  their  "right  to  charge  exchange,"  and 


HISTORY  OF  BANKING  IN  ILLINOIS  "         413 

many  of  these  went  so  far  as  to  secure  injunctions  against  the  Fed- 
eral Reserve  hanks  of  their  respective  districts  with  the  ohject  of  pre- 
venting them  from  undertaking  to  collect  checks  drawn  upon  oppos- 
ing banks. 

As  a  result,  the  Federal  Reserve  banks  undertook  an  active  cam- 
paign urging  par  collection  for  the  benefit  of  the  general  public  and 
the  business  of  the  country.  This  was  staged  during  1919  and  in 
most  sections  notable  progress  was  made.  Whereas  in  1918  there 
had  been  in  the  whole  United  States  8,692  members  and  10,30,3  non- 
members  remitting  at  par,  and  10,247  non-member  banks  not  on  the 
par  list,  by  the  end  of  1919  the  number  of  non-par  banks  had  been 
reduced  to  4,015.  In  1920,  after  still  more  activity  on  the  part  of  the 
Federal  Reserve  banks  there  remained  only  1,732  non-par  banks,  all 
of  which  were  confined  to  the  Fifth,  Sixth,  and  Eighth  districts. 

By  this  time,  in  spite  of  the  fact  that  practically  the  whole  coun- 
try was  on  a  par  collection  basis,  agitation  continued  to  appear  which 
originated  both  from  political  sources  and  from  the  continued  dis- 
content of  those  bankers  who  were  of  the  opinion  that  in  removing 
their  ability  to  charge  exchange  the  Federal  Reserve  banks  were  se- 
curing an  advantage  at  their  expense.  It  must  be  remembered,  how- 
ever, that  the  plan  for  par  collection  was  not  an  arbitrary  one  devised 
by  Congress  and  imposed  upon  the  banks  of  the  country.  There  had 
been  sections  long  before  the  establishment  of  the  Federal  Reserve 
System  which  had  begun  to  remit  at  par,  and  in  all  parts  of  the  United 
States  country  clearing  houses  were  being  established  for  the  purpose 
of  reducing  exchange  charges.  The  establishment  of  par  collection 
by  the  Federal  Reserve  banks  was,  therefore,  the  result  of  a  gradual 
growth  and  change  in  banking  methods.  To  be  sure,  the  Federal  Re- 
serve banks  did  all  in  their  power  to  hasten  the  culmination  of  this 
tendency  toward  par  collection,  but  without  the  previous  development 
of  the  idea,  such  a  plan  could  never  have  been  so  rapidly  developed. 

By  1920  cases  began  to  come  into  the  courts  and  some  of  the  state 
legislatures  attempted  to  enact  laws  making  it  illegal  for  Federal  Re- 
serve banks  to  make  collections  upon  non-member  banks  in  those 
states  without  the  payment  of  exchange.  Most  of  these  laws  were 
enacted  without  any  thought  to  their  ultimate  effect  on  the  banking 
interests  of  these  communities,  but  aimed  only  at  the  right  to  charge 
exchange,  and  they  attempted  to  accomplish  that  one  thing  without 
regard  to  other  factors  which  might  make  the  charging  of  exchange 
an  actual  detriment  to  the  banks  affected.    Also  those  in  violent  oppo- 


414  FINANCING  AX  EMPIRE 

sition  to  the  Federal  Reserve  banks  disregarded  the  fact  that  the  Fed- 
eral Reserve  Act  had  always  made  provision  for  reasonable  charges 
to  cover  the  actual  expenses  involved  in  check  collection. 

Thus,  for  many  years  the  par  collection  controversy  waged,  with 
the  Attorney- General  of  the  United  States  offering  the  opinion  that 
Federal  Reserve  banks  might  not  pay  exchange  charges  to  banks, 
although  they  might  decline  to  receive  checks  which  they  could  col- 
lect only  by  sending  to  those  banks  imposing  a  charge ;  with  state  leg- 
islatures enacting  often  very  absurd  laws  for  the  supposed  protection 
of  banks  desiring  to  make  an  exchange  charge.  In  Illinois,  however, 
this  controversy  never  assumed  the  prominence  it  did  in  those  states 
where  the  matter  was  carried  into  the  courts  and  fought  bitterly. 
Doubtless  the  feeling  was  as  intense  among  some  of  the  banks  of  Illi- 
nois as  in  other  sections,  but  it  was  the  good  fortune  of  this  state  that 
eventually  the  difficulties  were  settled  without  too  much  unpleasant- 
ness, and  to  the  general  satisfaction  of  all.  The  par  clearance  require- 
ment was  eventually  able  to  triumph  over  the  doubts  and  fears  which, 
during  the  thick  of  its  difficulties,  had  been  expressed  even  by  mem- 
bers of  the  Federal  Reserve  Board  itself. 

After  all,  it  is  the  business  interests  of  the  country  which  profit 
most  from  a  system  of  par  collection,  although  they  have  been  slow 
to  recognize  the  help  received,  while  those  who  do  appreciate  the 
value  of  such  a  system  have  been  exceedingly  tardy  in  taking  any 
positive  point  of  view  on  the  matter  lest  they  thereby  offend  such  of 
their  bankers  as  have  not  been  friendly  to  the  system.  As  a  matter 
of  fact,  par  collection  was  necessary  in  order  to  direct  checks  and 
drafts  to  reserve  banks  and  thereby  keep  reserve  balances  in  an  ac- 
tive state,  so  as  to  prevent  them  from  becoming  dead  sums  of  cash 
held  for  no  reason  except  that  the  law  required  it. 

Closely  dependent  upon  the  question  of  par  collection  was  the  es- 
tablishment of  the  Gold  Settlement  Fund.  It  was  this  means  that 
made  inter-district  clearing  effectively  possible  and  which  thereby 
enabled  the  Federal  Reserve  System  to  have  the  funds  of  the  coun- 
try always  at  the  spot  where  they  were  most  needed.  The  provision 
of  the  Act  allowing  the  Federal  Reserve  Board  to  act  as  a  clearing 
house  for  the  several  Federal  Reserve  banks  made  possible  the  Gold 
Settlement  Fund,  the  first  agitation  for  which  came  from  within  the 
System  itself  when  in  1915  there  was  a  movement  to  have  the  Board 
designate  one  of  the  Reserve  banks  as  a  clearing  house  for  all  twelve. 
The  Federal  Reserve  Bank  of  Chicago  presented  itself  as  a  candidate 


HISTORY  OF  BANKING  IN  ILLINOIS  "         415 

for  such  designation,  but  the  Board  promptly  ended  any  discussion  of 
the  matter  or  controversy  between  banks  by  announcing  that  it  would 
itself  serve  in  the  capacity  of  a  clearing  house.  This  promise  was 
carried  out  when  on  May  8,  1915,  the  Gold  Settlement  Fund  was 
established  which  first  required  that  each  Federal  lleserve  bank  de- 
posit the  sum  of  one  million  dollars,  plus  the  amount  of  its  indebted- 
ness to  other  Federal  Reserve  banks,  with  the  Treasurer  of  the  United 
States  or  at  any  sub-treasury.  This  fund,  operated  by  the  Federal 
Reserve  Board  with  the  close  cooperation  of  the  Treasury  Depart- 
ment, wras  at  first  used  for  settlements  effected  only  once  a  week. 
On  Wednesday  of  each  week  the  Federal  Reserve  banks  would  trans- 
mit to  the  Board  advices  of  the  amount  of  their  debits  and  credits  to 
each  other.  On  Thursday  the  settlements  were  made  and  a  telegram 
then  sent  to  each  bank  giving  the  amounts  which  all  other  Federal 
Reserve  banks  had  reported  as  due,  together  with  the  net  amount  by 
which  each  was  debtor  or  creditor  at  the  clearing.  This  information 
was  entered  upon  the  books  of  the  bank  in  the  shape  of  debits  and 
credits  to  all  other  banks  involved  and  thereby  was  eliminated  the 
necessity  of  making  currency  shipments  from  one  Federal  Reserve 
bank  to  another. 

The  working  of  the  Gold  Settlement  Fund  was  a  success  almost 
from  the  beginning  and  its  efficiency  in  bringing  about  the  balancing 
of  accounts  between  Federal  Reserve  banks  won  for  it  friends  from 
among  the  most  strenuous  objectors  to  the  assumption  of  this  clear- 
ing function  by  the  Board.  The  frequency  of  clearing  was  advanced 
to  a  daily  basis  early  in  1918  when,  largely  because  of  war-time  trans- 
actions, the  volume  of  business  became  very  heavy.  Each  3rear  since 
then  the  volume  of  balances  settled  has  increased  and  through  the  co- 
operation of  this  Fund,  the  value  of  the  Federal  Reserve  System  to 
the  business  of  America  has  been  greatly  enhanced. 

While  it  is  not  a  matter  of  great  significance,  it  is  interesting  to 
recall  that  the  first  withdrawal  from  the  Gold  Settlement  Fund  was 
made  by  the  Federal  Reserve  Bank  of  Chicago.  This  took  place  on 
July  14,  1915,  when  at  10:30  A.  M.,  the  Chicago  bank  sent  a  tele- 
gram to  the  Federal  Reserve  Board  requesting  a  certain  sum.  At  two 
o'clock  that  same  afternoon  the  Assistant  Treasurer  of  the  United 
States  at  Chicago  advised  the  bank  of  his  readiness  to  make  the  de- 
sired payment.  By  the  middle  of  November,  just  four  months  after 
this  initial  transaction,  the  Gold  Settlement  Fund  passed  the  one 
hundred  million  dollar  mark. 


41  (i  FINANCING  AN  EMPIRE 

Prior  to  our  entry  into  the  war,  the  newly  authorized  discount 
operations  of  the  Federal  Reserve  System  were  comparatively  small. 
As  a  result  of  the  Federal  Reserve  Act  there  came  a  rather  prompt 
restoration  of  nearly  normal  trade  relations,  an  influx  of  European 
gold,  and  a  lowering  of  reserve  requirements,  all  of  which  worked 
toward  a  lessened  need  on  the  part  of  the  banks  for  additional  funds 
to  care  for  the  needs  of  their  customers.  Even  as  late  as  April,  1917, 
there  was  no  inter-district  discounting.  Consequently,  open-market 
operations  of  the  Federal  Reserve  System  were  of  considerably  more 
importance  than  its  rediscounting  business,  but  even  open-market 
transactions  during  the  first  two  years  of  the  banks'  operations  were 
kept  at  the  lowest  possible  level,  and  generally  used  only  so  far  as 
was  necessary  to  meet  expenses  which,  in  most  districts,  could  not 
be  done  out  of  income  derived  from  the  small  amount  of  discounting 
performed. 

In  the  year  1910  the  Federal  Reserve  Bank  of  Chicago  had  a  total 
membership  of  922.  Notes  were  then  rediscounted  for  only  212  of 
these  banks.  In  all,  the  rediscounting  operations  of  the  Chicago  bank 
for  that  year  totaled  $23, 178, 110.94,  with  rates  ranging  from  three 
and  one-half  to  five  per  cent,  depending  on  maturity.  Of  this  amount 
$10,005,839.77  was  composed  of  commercial  and  industrial  paper, 
the  remaining  $7,112,277.17  consisting  of  agricultural  or  live-stock 
paper.  The  commercial  paper  included  $105,177.4.5  of  trade  accept- 
ances. 

During  this  same  year  the  rediscounting  privilege  was  made  of 
greater  value  to  the  country  by  an  act  of  Congress  which  empowered 
the  Federal  Reserve  banks  to  discount  the  fifteen-day  notes  of  mem- 
ber banks,  providing  they  were  secured  by  paper  eligible  for  redis- 
count or  purchase.  This  privilege  was  especially  appreciated  in 
larger  financial  centers  and  almost  immediately  eight  Seventh  district 
banks  availed  themselves  of  the  arrangement  to  the  amount  of  $5,417,- 
500. 

It  is  a  matter  of  regret  that  the  Federal  Reserve  System  did  not 
become  operative  in  sufficient  time  to  serve  the  country  in  the  crisis 
brought  on  the  financial  and  business  world  by  the  outbreak  of  the 
European  War.  The  machinery  of  the  newly  created  system  was  not 
actually  set  in  motion  until  November  10,  1914. 

No  period  of  the  world's  financial  history  has  presented  graver 
problems  to  the  banking  community  than  this  in  which  the  Federal 
Reserve  banks  began  operations.     Following  the  outbreak  of  hostili- 


HISTORY  OF  BANKING  IN  ILLINOIS  '        417 

ties  in  August,  191-4,  the  commercial  world  had  been  seriously  dis- 
rupted; international  financial  relationships  swept  aside,  and  security 
markets  completely  demoralized.  The  whole  machinery  of  trade  and 
finance  was  thrown  into  a  state  of  chaos.  America,  with  her  Federal 
Reserve  System  not  yet  in  operation,  was  forced  to  use  the  provi- 
sions for  emergency  currency  under  the  Aldrich-Yreeland  Act,  and 
in  many  places  stock  exchange  and  clearing  house  certificates  were 
used.  By  the  date  of  the  opening  of  the  Federal  Reserve  banks,  the 
first  shock  of  the  crisis  had  spent  itself,  although  much  still  remained 
to  be  done,  and  immediately  the  new  System  became  a  great  stabiliz- 
ing influence  which  quickly  aided  a  return  to  conditions  as  nearly 
normal  as  was  to  be  possible  for  many  years  to  come. 

For  months  the  Reserve  Bank  Organization  Committee  had  been 
busy  preparing  an  efficient  groundwork  on  which  the  new  System 
might  operate.  It  was  largely  through  the  efforts  of  this  committee 
that  the  boundaries  of  the  twelve  Federal  Reserve  districts  were  estab- 
lished whereby  the  state  of  Illinois  was  divided  between  the  Federal 
Reserve  Banks  of  Chicago  and  St.  Louis.  The  northern  part  of  the 
state,  including  "all  that  part  of  Illinois  located  north  of  a  line  form- 
ing the  southern  boundary  of  Hancock,  Schuyler,  Cass,  Sangamon, 
Christian.  Shelby,  Cumberland,  and  Clark  Counties,"  was  made  trib- 
utary to  the  Federal  Reserve  Bank  of  Chicago,  all  below  that  line 
to  St.  Louis.  In  other  words,  the  State  of  Illinois  was  divided  by  a 
zig-zag  line  starting  just  south  of  the  Missouri-Iowa  boundary  and 
terminating  a  little  below  that  place  where  the  Wabash  River  becomes 
the  eastern  boundary  for  the  state.  The  section  tributary  to  Chicago 
was  in  the  Seventh  Federal  Reserve  district,  that  tributary  to  St. 
Louis  in  the  Eighth  district. 

For  a  number  of  years  the  various  Federal  Reserve  banks  were 
required  to  carry  out  their  operations  from  temporary  quarters  which, 
largely  because  of  war  conditions,  were  not  always  either  adequate  or 
convenient.  The  Federal  Reserve  Bank  of  Chicago  first  occupied 
two  floors  of  the  Rector  Building  on  the  southeast  corner  of  Clark 
and  Monroe  streets.  Then  as  its  business  was  expanded,  the  bank 
found  it  necessary  to  increase  its  quarters  by  the  addition  of  some  six 
or  more  floors  in  the  Rector  Building,  several  floors  in  the  building 
across  the  street  known  as  107  West  Monroe  Street,  and  some  space 
in  the  Rookery  Building  on  La  Salle  Street,  where  the  fiscal  agency 
activities  for  the  United  States  Treasury  Department  were  con- 
ducted until  the  close  of  the  War.    This  last  department  subsequently 


418  FINANCING  AN  EMPIRE 

moved  to  the  Kimball  Building  on  the  southwest  corner  of  Jackson 
Boulevard  and  Wabash  Avenue.  Then,  as  time  went  on,  it  became 
necessary  to  rent  extensive  warehouse  space  and,  finally,  two  floors 
of  each  of  the  two  buildings  on  the  east  side  of  Clark  Street,  adjoin- 
ing the  Rector  Building  on  the  south.  Much  of  this  rented  space  had 
to  be  remodeled  to  help  house  the  then  sixteen  hundred  employees  of 
the  bank. 

Nevertheless,  these  quarters  were  so  inadequate  and  employees 
of  the  bank  were  required  to  work  under  such  difficulties  that  when 
finally  the  institution's  own  modern  and  spacious  building  was  com- 
pleted it  took  members  of  the  organization  several  weeks  to  become 
accustomed  to  passage  ways  between  desks  and  machinery  entirely 
free  from  all  barriers.  Furthermore,  some  of  the  temporary  quarters 
had  been  extremely  unpleasant  in  other  respects.  One  building  had 
been  overrun  with  rats,  methods  for  exterminating  which  did  not 
produce  such  good  results  as  might  be  desired.  Some  of  the  depart- 
ments were  so  scattered  that  stenographers  were  forced  to  travel 
across  crowded  downtown  streets,  or  ascend  as  many  as  three  flights 
of  stairs  to  reach  the  offices  of  their  chiefs. 

,  Under  such  conditions  it  is  plain  that  adequate  methods  for  pro- 
tection, among  other  things,  were  not  available  and,  as  a  result,  offi- 
cers of  the  bank  were  kept  in  a  state  of  constant  tension.  To  be  sure, 
money  was  not  kept  in  the  bank's  rented  quarters,  but  was  given  the 
safeguards  provided  by  vaults  of  some  of  the  larger  downtown  banks. 
However,  there  was  constant  fear  lest  some  danger  come  to  the  insti- 
tution as  a  result  of  war  propaganda.  Shortly  after  the  United  States 
entered  the  War,  the  Government  Secret  Service  Department  noti- 
fied the  officers  that  there  had  been  unearthed  a  plot  to  blow  up  the 
Federal  Reserve  Bank  of  Chicago.  Were  this  allowed  to  culminate, 
while  there  would  be  no  loss  of  actual  money,  the  destruction  of  life 
and  property  would  be  terrific.  Consequently,  the  whole  organiza- 
tion was  put  under  heavy  guard  and  for  several  days  affairs  remained 
at  high  tension. 

At  this  time  it  was  customary  for  the  officers  of  the  bank  to  hold 
all  meetings  at  Rector's  Restaurant  in  the  basement  of  the  build- 
ing which  housed  a  large  number  of  the  bank's  departments.  One 
such  meeting  was  held  shortly  after  the  plot  had  been  revealed. 
■Tames  B.  Forgan,  President  of  the  First  National  Bank,  who  was 
in  attendance  at  this  meeting,  was  then  suffering  from  an  ailment 
which  required  that  he  add  a  certain  chemical  to  his  food.     He  car- 


FEDERAL  RESERVE  BANK  BUILDING  IN  CHICAGO 


HISTORY  OF  BANKING  IN  ILLINOIS  *        421 

ried  the  medicine  about  in  small  flasks,  each  just  large  enough  to  hold 
one  dose.  One  of  these  tiny  bottles  was  placed  on  the  table  before 
Mr.  Forgan  and  while  the  bankers  were  deep  in  conversation,  its 
cork  suddenly  popped.  For  a  moment  panic  reigned.  Everyone 
believed  that  a  bomb  had  exploded,  but  as  soon  as  the  feeble  cause 
of  the  disturbance  was  discovered,  the  officers  of  the  Federal  Reserve 
Bank  of  Chicago  took  much  juleasure  in  laughing  at  one  another  for 
their  obvious  display  of  "nerves." 

Thus,  after  years  of  working  conditions  which  were  far  from  ideal 
and  which  greatly  complicated  problems  of  administration,  it  became 
essential  to  efficiency  and  economy  that  all  activities  of  the  bank  be 
conducted  under  one  roof.  Then  the  ground  on  La  Salle  Street  be- 
tween Quincy  Street  and  Jackson  Boulevard  was  bought  and  a  build- 
ing designed.  Work  of  construction  was  rushed  and,  by  the  closing 
days  of  April,  1922,  several  departments  were  in  a  position  to  occupy 
quarters  prepared  for  them  in  the  new  Federal  Reserve  Bank  Build- 
ing, an  imposing  fourteen-story  structure  of  gray  stone  with  columns 
and  ornamentations,  every  line  giving  the  impression  of  stability 
which  is  characteristic  of  the  svstem  for  which  it  stands. 


Vol.  1—14 


CHAPTER  XXIII 
WAR  CONDITIONS 

War  demand  for  products  of  America — Business  and  banking  activities  in  Chicago — 
Monetary  conditions — Increase  in  scope  of  national  banks — Interest  rates,  prices 
and  wages — Chicago's  "Peace  Credits" — Loan  to  China — Flotation  of  Liberty  Loans 
and  sale  of  War  Savings  Stamps. 

At  the  beginning  of  1915  the  business  of  America  was  in  a  posi- 
tion to  be  resumed.  This  was  the  expected  sequel  to  the  opening  of 
the  stock  exchanges,  which  had  been  forced  to  close  upon  the  news 
of  the  outbreak  of  the  war  and  to  remain  so  until  the  close  of  the 
year  1914.  By  the  early  months  of  1915,  the  war  had  followed  its 
course  of  destruction  to  such  an  extent  that  the  Quadruple  Entente, 
composed  of  Great  Britain,  France,  Russia,  and  Italy,  the  latter  hav- 
ing declared  war  against  Austria  on  May  28,  found  itself  in  des- 
perate need  of  the  output  of  American  agriculture  and  industry  and. 
since  this  source  of  supply  was  limited  considering  the  vast  portion 
of  the  world  dependent  upon  it,  American  producers  quickly  found 
themselves  in  a  situation  where  they  might  name  any  price  they  chose 
for  their  products.  At  first  it  was  only  the  steel  trade  that  was  ex- 
tremely affected,  but  soon  one  industry  after  another  was  drawn  into 
the  favored  class  until  there  remained  practically  none  which  did  not 
boom  in  every  branch. 

Chicago  as  a  central  market  for  grain,  meat,  and  steel,  became 
likewise  a  center  for  feverish  productive  activity,  and  from  her  mar- 
kets there  flowed  a  constant  stream  of  munitions  and  food  supplies 
to  be  used  abroad.  The  city,  like  other  parts  of  the  country,  quickly 
emerged  from  a  situation  in  which  unemployment  was  everywhere 
found  to  such  an  alarming  extent  that  special  commissions  had  to 
be  appointed  to  find  a  way  of  taking  care  of  the  idle  during  the  winter 
months,  to  a  state  of  affairs  in  which  not  only  was  there  no  unem- 
ployment, but  such  a  dearth  of  available  labor  that  production  could 
not  cope  with  the  orders  on  hand,  and  both  factories  and  transporta- 

422 


HISTORY  OF  BANKING  IN  ILLINOIS  -         420 

tion  facilities  were  gorged  and  choked  with  products  that  could  not 
be  moved  as  rapidly  as  conditions  demanded. 

With  a  congested  stream  of  agricultural  and  manufactured 
products  leaving  the  city,  it  is  to  be  expected  that  a  proportionately 
large  supply  of  money  would  flow  in,  which,  indeed,  was  the  case. 
When  the  state  auditor  made  his  call  for  statements  during  the  month 
of  May,  it  was  learned  that  the  combined  deposits  of  both  national 
and  state  banks  in  the  city  of  Chicago  were  in  excess  of  $1,050,000,000, 
representing  an  increase  of  approximately  twenty-one  million  dol- 
lars since  the  last  previous  call.  More  than  fifteen  million  dollars 
of  this  amount  represented  the  increase  taken  by  a  single  large  down- 
town bank  which  was  in  a  position  to  receive  funds  from  great  dis- 
tances. Every  man,  woman,  and  child  seemed  to  have  money  in 
great  profusion  and,  although  the  rule  "easy  come,  easy  go"  was  in 
active  operation  and  enormous  sums  were  squandered  on  luxuries  of 
little  worth,  there  was  a  sufficient  surplus  to  permit  an  ever  increas- 
ing amount  to  enter  the  channels  of  savings  and  investment.  Banks 
found  it  to  their  advantage  to  increase  the  scope  of  their  service  so 
as  to  attract  more  of  the  otherwise  squandered  funds  to  their  vaults, 
and  there  soon  developed  countless  schemes  for  increasing  bank  de- 
posits which  previously  would  not  have  been  considered  properly 
dignified  for  financial  institutions.  Free  services  were  broadly  adver- 
tised and  in  time  even  gifts  and  premiums  were  offered  to  depositors, 
often  savoring  of  the  ridiculous.  Banks  which  began  by  giving  flags 
and  pictures  of  the  President  soon  degenerated  to  the  place  where 
even  mirrors  and  pocket  combs  were  given  "free"  with  new  accounts. 

Under  this  pressure,  the  national  banks,  which  had  long  stood  as 
bulwarks  of  conservatism,  felt  the  strain  so  greatly  that  they  applied 
to  the  Federal  Reserve  Board  for  permission  under  the  Federal  Re- 
serve Act,  to  include  trust  departments  in  their  organizations.  Upon 
due  consideration  this  permission  was  granted,  much  to  the  discom- 
fort of  state  institutions  in  some  sections  where  they  had  depended 
on  such  departments  to  give  them  a  much  coveted  advantage  over 
competing  national  banks.  In  Illinois  the  feeling  reached  such  a 
height  that  State  Auditor  Brady  found  it  advisable  to  consult  the 
Attorney-General  who  announced  himself  as  holding  the  position 
that,  while  the  Federal  Reserve  Act  provided  for  trust  departments 
in  national  banks,  the  State  of  Illinois  should  not  take  upon  itself 
the  responsibility  involved  in  abiding  by  that  decision.  These  de- 
partments,   he    maintained,    were    actually    under    state    instead    of 


424  FINANCING  AN  EMPIRE 

national  supervision  and,  since  state  bank  examiners  had  no  power 
to  make  examinations  in  isolated  departments  of  national  institu- 
tions and  could  make  such  examinations  only  on  sufferance,  the  state 
was  not  in  a  position  to  foster  or  be  responsible  for  trust  departments 
in  national  banks. 

In  spite  of  the  fact  that  the  banks  vied  with  one  another  in  an 
effort  to  put  as  much  of  the  available  supply  of  money  as  possible 
into  their  vaults,  during1  most  of  the  year  they  were  faced  with  a 
situation  which,  strangely  enough,  combined  abnormally  low  interest 
rates  with  a  sustained  upward  movement  in  general  business.  There 
was  so  great  a  plethora  of  loanable  funds  as  to  keep  rates  at  a  point 
where  the  large  banks  could  not  secure  a  proportionate  share  in  the 
big  profits  realized  in  other  lines.  The  importations  of  gold  were 
unprecedented  and,  since  the  Federal  Reserve  System  was  not  yet 
in  complete  operation,  there  was  not  adequate  machinery  for  con- 
tracting the  currency  that  might  keep  conditions  somewhere  near 
normal.  In  fact,  the  situation  was  so  difficult  that  bankers  decided 
that,  were  it  to  continue  for  much  longer,  it  would  be  necessary  to 
adopt  a  new  basis  of  operations,  putting  every  account  on  its  own 
merits.  This  was  to  be  done  by  charging'  directly  for  services  ren- 
dered to  customers  and  by  adjusting  interest  payments  to  the  fluctua- 
tions of  the  money  market.  Large  numbers  of  accounts  in  that 
period  of  plentiful  money  were  handled  on  an  insufficient  margin  of 
profit,  while  the  unprecedented  volume  and  number  of  transactions 
passing  through  the  banks  indicated  that  there  was  more  business 
than  ever  before  in  the  country's  history,  and  it  was  plain  that  a  very 
generous  portion  of  this  increased  business  activity  centered  about 
that  section  of  the  country  from  which  Chicago  drew  its  trade  and 
bank  balances.  Nor  must  one  be  misled  into  believing  that  all  this 
was  war  business.  Domestic  affairs  were  prospering  to  a  point  where 
business  of  a  permanent  character,  as  well  as  that  supplying  war 
industries,  had  increased  and  was  experiencing  a  steady  expansion. 

During  the  following  year,  clearings  of  Chicago's  banks  amounted 
to  $20,541,000,000;  more  than  a  four  billion  dollar  gain  over  the 
year  1915,  which  gain  alone  was  greater  than  the  total  amount  of 
clearings  in  the  city  in  1896.  Never  before  had  the  volume  of  trade 
in  the  territory  tributary  to  Chicago  been  so  great  nor  had  there  been 
such  an  urgent  demand  for  labor  on  a  rising  wage  scale  or  so  in- 
satiable a  demand  for  all  kinds  of  farm  products,  raw  materials,  and 
manufactured   goods   at   ever   increasing   prices.     During   the   year 


HISTORY  OF  BANKING  IN  ILLINOIS  '        425 

1916  the  stream  of  money  flowing  into  the  west,  chiefly  through  Chi- 
cago, was  comparahle  to  the  vast  shipments  of  gold  constantly  arriv- 
ing at  New  York.  It  seemed  that  the  supply  of  money  was  inex- 
haustible and  the  banks  continued  to  be  burdened  with  a  surplus  of 
funds.  Expand  as  they  might,  the  packing  houses,  steel  mills,  auto- 
mobile and  implement  makers,  car  shops,  and  other  branches  of  in- 
dustry were  rushed  to  the  limit  of  their  capacity.  Railroads  could 
not  handle  the  freight  given  them  and  the  clogged  outlets  for  all  these 
manufactured  products  which  had  been  a  great  problem  in  191o,  now 
stood  definitely  in  the  way  of  that  extreme  prosperity  which  might 
otherwise  have  been  attained. 

Rising  prices,  more  than  any  one  other  situation,  characterized 
the  year  1916.  Such  industries  as  were  able  to  raise  their  prices  with 
great  rapidity  likewise  increased  wages  with  porportionate  generosity. 
The  United  States  Steel  Corporation,  for  example,  to  which  pros-, 
perity  came  first  among  the  larger  industries,  gave  its  employees 
three  increases  of  ten  per  cent  each  during  the  year  which,  because 
of  the  cumulative  effect  of  each  succeeding  ten  per  cent,  made  an 
actual  wage  increase  during  the  year  of  thirty-three  and  one-tenth 
per  cent.  In  many  industries,  however,  the  policy  was  not  so  thought- 
ful of  employees  or  rising  prices  did  not  come  so  soon,  thus  making 
increased  wages  impossible;  in  these,  men  and  women  had  to  learn 
in  one  way  or  another  to  adjust  themselves  to  ever  rising  prices  for 
necessities  while  their  income  remained  stationary  or  grew  at  a  far 
less  rapid  rate  than  did  expenditures. 

During  the  year  1916  the  bankers  of  Chicago  played  an  important 
part  in  world  financing  through  a  system  of  "peace  credits"  which 
enabled  the  French  Government  to  place  large  orders  with  Chicago 
manufacturers  for  machinery  and  other  supplies  to  be  delivered  to 
French  business  concerns.  These  purchases  were  to  be  paid  for 
through  credits  extended  by  various  Chicago  banks  and  the  arrange- 
ment was  to  become  effective  at  the  close  of  the  war.  The  machinery 
purchased  under  this  plan  consisted  largely  of  agricultural  imple- 
ments and  factory  equipment. 

Likewise,  Chicago,  through  the  Continental  and  Commercial  Na- 
tional Bank  which  had  associated  with  it  in  the  undertaking,  the  firm 
of  Chandler  and  Company  of  Xew  York  City,  made  a  loan  of  five 
million  dollars  to  the  Republic  of  China  through  its  Minister  at 
Washington,  Dr.  V.  K.  Wellington  Koo.  Levi  Mayer  of  Chicago 
represented  the  Chinese  Government  in  the  negotiations  and  secured 


426  FINANCING  AN  EMPIRE 

for  his  client  a  six  per  cent  loan  to  mature  in  three  years.  After 
Secretary  of  State  Lansing  gave  his  formal  approval  to  this  action 
of  the  Chicago  bank,  the  bonds  were  sold  over  a  wide  market  at  a 
price  of  $97.50  and  interest  to  net  the  investor  about  6.90  per  cent. 
The  beginning  of  1917  found  generally  satisfactory  business  con- 
ditions in  the  Seventh  Federal  Reserve  district,  and  the  annual  report 
of  the  St.  Louis  bank  for  that  year  described  business  as  on  a  high 
level  in  the  area  surrounding  that  city.  Illinois  member  banks  redis- 
counted  with  the  Chicago  institution  to  the  amount  of  $287,592, 763, 
while  St.  Louis  was  called  upon  for  only  $3,270,141.  Throughout 
the  subsequent  year,  1918,  the  greater  portion  of  the  Chicago  Reserve 
bank's  earning  assets  was  represented  by  discounts  for  member  banks 
involving  United  States  Government  war  obligations  as  security  in 
one  form  or  another.  "On  January  2,  1918,"  says  the  Fourth  An- 
nual Report  of  the  Federal  Reserve  Bank  of  Chicago,  "the  per- 
centage of  the  'Bills  discounted'  by  this  bank  representing  war 
financing  was  twenty-five  per  cent.  Until  September  13  there  was 
no  segregation  on  our  ledgers  of  the  item  'bills  discounted'  into  paper 
given  for  the  purchase  of  government  obligations  and  paper  given 
for  commercial  or  industrial  purposes.  Figures  available  after  Sep- 
tember 13  show  that  of  total  'bills  discounted'  as  high  as  seventy- 
seven  per  cent  was  war  paper,  while  the  lowest  percentage  shown 
in  the  subsequent  weeks  of  1918  was  sixty-two  per  cent."  The 
middle  of  the  year  found  nearly  all  banks  in  the  district  short  of 
funds,  their  previous  surplus  by  that  time  having  been  largely  ab- 
sorbed by  the  successive  Liberty  loan  issues  and  "anticipatory  issues 
of  certificates  of  indebtedness."  A  similar  situation  prevailed  in  the 
Eighth  district  where  during  the  year  sixty-one  different  member 
banks  received  accommodation  totaling  $46,677,210,  a  large  increase 
over  the  figure  given  above  for  1917.  The  Chicago  bank  cared  for 
the  discounting  needs  of  one  hundred  and  sixty-eight  members,  to 
the  amount  of  $1,741,500,084. 

This  briefly  outlines  the  trend  of  activity  other  than  fiscal  agency 
functions  carried  on  by  the  two  reserve  banks  caring  for  the  needs 
of  Illinois  banking  during  the  war  years.  A  detailed  discussion  of 
Liberty  Loan  and  certificate  of  indebtedness  operations  shows 
graphically  the  monumental  work  carried  on  by  the  Federal  Reserve 
System  in  assisting  the  prosecution  of  the  war. 

Some  days  prior  to  the  actual  declaration  of  war  with  Germany- 
April    6,    1917 — this    inevitable   move    had    been    plainly    foreseen. 


HISTORY  OF  BANKING  IN  ILLINOIS  '        427 

Therefore,  the  tenth  conference  of  governors  of  the  Federal  Re- 
serve banks,  which  met  at  Washing-ton  on  April  4  to  6,  thoroughly 
discussed  financial  problems  contingent  upon  an  actual  state  of  war. 
Mr.  McAdoo,  then  Secretary  of  the  Treasury,  informed  the  gov- 
ernors that  he  would  act  under  that  section  of  the  Federal  Reserve 
Act  which  vested  in  him  the  power  to  require  the  Federal  Reserve 
banks  to  act  as  fiscal  agents  of  the  United  States  Government.  On 
May  14,  the  Secretary  definitely  made  good  his  promise  by  sending 
out  a  circular  which  designated  the  Federal  Reserve  banks  as  "fiscal 
agents  of  the  United  States,  to  collate  applications  (for  Liberty 
Bonds)  and  to  give  notices  of  the  allotments  which  the  Secretary  of 
the  Treasury  will  eventually  make  to  subscribers,  and  to  issue  interim 
certificates  for  payments  made  on  loan  subscriptions." 

On  May  4,  1917,  however,  there  had  been  held  in  New  York  a 
meeting  of  over  sixty  representatives  of  various  banking  groups. 
Governor  Benjamin  Strong,  of  the  Federal  Reserve  Bank  of  New 
York  presided,  Secretary  McAdoo  was  present,  as  were  also  Messrs. 
Gates  W.  McGarrah,  President  of  the  Mechanics  and  Metals  Bank 
of  New  Yrork,  Frank  C.  Vanderlip,  President  of  the  National  City 
Bank,  New  York,  and  Jacob  Schiff  of  Kuhn  Loeb  and  Company. 
Mr.  McAdoo  told  this  meeting  of  the  imperative  need  for  keeping- 
production  and  prosperity  at  the  highest  point.  To  do  this,  he  said, 
adequate  profits  were  necessary.  Also  he  suggested  increasing  taxa- 
tion through  lowering  the  point  of  income  tax  exemption  and  in- 
creasing excess  profits  and  consumption  taxes,  postal  rates,  and,  in 
general,  making  tax  increases  all  along  the  line.  In  further  discus- 
sions the  fact  was  brought  out  that  to  be  successful,  war  financing 
must  come  from  new  money  and  future  savings  rather  than  from 
existing  capital.  Only  one  thing,  it  was  agreed,  could  mar  the  suc- 
cess of  the  first  loan — an  upset  in  the  money  market— and  the  prob- 
lem of  avoiding  this  difficulty  was  placed  squarely  on  the  Federal 
Reserve  banks. 

On  this  same  day — May  4,  1917 — Governor  James  B.  McDougal 
of  the  Federal  Reserve  Bank  at  Chicago  called  a  meeting  to  which 
he  invited  representatives  of  the  members  of  the  Chicago  Clearing 
House  Association  and  of  the  leading  investment  bond  houses  in 
Chicago.  These  men  were  organized  as  the  "General  Liberty  Loan 
Committee  for  the  Seventh  Federal  Reserve  District."  From  among 
their  number  this  group  immediately  appointed  an  Executive  Com- 
mittee, which  authorized  Governor  McDougal  to  send  a  telegram  to 


428  FINANCING  AN  EMPIRE 

presidents  of  all  clearing  houses  or  of  the  most  prominent  banks  in 
every  city  of  the  Seventh  Federal  Reserve  district  having  a  popula- 
tion of  5,000  or  more.  In  this  telegram  the  steps  already  taken 
toward  organization  in  Chicago  were  reported  and  it  was  suggested 
that  the  recipients  appoint  committees  for  similar  organizations  in 
their  respective  communities.  An  almost  immediate  result  was  the 
effective  organization  of  some  two  hundred  communities  in  the  dis- 
trict. Three  days  later  the  Executive  Committee  appointed  its  mem- 
bers also  a  Publicity  Committee.  On  both  committees  executive 
authority  was  placed  in  the  control  of  the  Federal  Reserve  Bank 
of  Chicago  by  making  Governor  McDougal  chairman  of  the  Execu- 
tive Committee  and  W.  A.  Heath,  Federal  Reserve  Agent,  chairman 
of  the  Publicity  Committee.  Furthermore,  each  of  these  gentlemen 
was  made  vice-chairman  of  the  committee  headed  by  the  other. 

When  first  the  rumor  was  spread  among  bankers  that  the  gov- 
ernment would  probably  ask  for  two  billion  dollars  on  the  First 
Liberty  Loan,  even  the  biggest  among  them — men  who  were  accus- 
tomed to  talk  in  figures  of  magnitude  incomprehensible  to  the  lay- 
man— were  stunned.  Millions  had  always  been  their  largest  unit  of 
comprehension.  "What  is  a  billion  dollars  like?"  they  asked  one  an- 
other, and  when  they  realized  that  it  represented  about  one-fifth  of 
the  country's  gold  reserve,  their  first  thought  was  that  such  a  stu- 
pendous amount  could  never  be  raised.  There  was  not  that  much 
money  to  be  had,  they  said,  but  they  had  forgotten  to  take  into  ac- 
count the  tremendous  credit  of  America.  After  all,  a  war  must  be 
fought  on  credit  and  not  money  and  in  America  there  was  enough 
credit,  if  properly  handled,  to  meet  almost  any  conceivable  emer- 
gency— no  banker,  no  business  man  doubted  that. 

The  Federal  Reserve  district  which  centered  at  Chicago  included 
all  of  the  State  of  Iowa  and  considerably  more  than  one-half  of  each 
of  the  States  of  Wisconsin,  Michigan,  Indiana,  and  Illinois.  For 
convenience  in  handling  the  war  loans,  this  territory  was  divided  into 
six  working  sections — Cook  County,  Illinois,  including  Chicago;  Illi- 
nois, exclusive  of  Cook  County;  and  one  section  covered  that  portion 
of  each  of  the  other  four  states  coming  under  the  jurisdiction  of  the 
Seventh  Federal  Reserve  district.  As  was  to  be  expected,  since 
the  machinery  for  directing  this  tremendous  undertaking  had  to  be 
centered  in  Chicago,  it  was  Illinois  people  who  were  to  carry  the 
heaviest  burden  of  directing  and  organizing  the  Liberty  Loan  cam- 
paigns.   First  of  all,  new  quarters  had  to  be  secured,  for  the  Federal 


HISTORY  OF  BANKING  IN  ILLINOIS  -        429 

Reserve  Bank  was  not  then  in  a  position  to  house  so  tremendous  an 
undertaking.  One  after  another,  additional  committees  had  to  be 
found  to  care  for  new  needs  that  constantly  arose.  Nor  could  any 
of  these  be  anything  but  an  active  working  unit.  Each  had  to  be 
under  the  leadership  of  men  whose  long  years  of  accomplishment 
had  proved  them  capable  of  meeting  the  demands  of  emergency 
financing  on  the  largest  scale  yet  attempted.  The  most  prominent 
financiers  and  business  men  of  Chicago  and  other  communities  gave 
freely  of  their  time  and  energy,  and  those  who  had  available  suitable 
office  space  gave  that  too,  free  of  charge,  so  that  the  many  new  de- 
partments needed  to  carry  on  the  enormous  task  of  mobilizing  the 
dollars  of  the  middle  west  for  war  might  be  properly  housed.  Busi- 
ness men  gave  up  pursuits  to  which  a  whole  lifetime  had  been  given 
and  now  spent  their  days  attending  meetings  at  headquarters  and 
putting  into  execution  the  plans  there  arranged.  One  committee 
chairman  related  how  not  only  did  those  working  with  him  manage 
to  attend  at  least  one  meeting  of  his  committee  each  day,  but  each 
also  served  on  a  number  of  sub-committees,  solicited  subscriptions, 
made  speeches,  and,  in  fact,  did  whatever  else  his  energy  and  talents 
would  permit.  Xone  of  these  men  kept  any  of  his  time  for  his  own 
affairs. 

The  first  great  publicity  event  of  the  campaign  was  launched  on 
May  17,  1917,  when  Secretary  of  the  Treasury  McAdoo  visited  Chi- 
cago and,  together  with  Hon.  W.  P.  G.  Harding,  Governor  of  the 
Federal  Reserve  Board,  who  had  come  from  Washington  for  this 
occasion,  addressed  committee  members  and  representative  bankers 
at  luncheon  and  dinner.  These  addresses  were  given  wide  publicity 
in  newspapers  throughout  the  district  and  so  became  an  important 
factor  in  the  subsequent  successful  sale  of  bonds. 

Early  in  the  campaign  the  Chicago  Daily  Xews  gave  the  services 
of  one  of  its  men,  Ben  McCutcheon,  who  established  himself  at  head- 
quarters and  there  built  up  a  miniature  newspaper  staff,  supplying 
Liberty  Loan  news  to  every  paper  in  the  entire  Seventh  district.  The 
cooperation  received  from  editors  was  so  excellent  that  at  times  whole 
papers  were  turned  over  to  McCuteheon's  needs.  Many  editors, 
after  printing  all  the  press  bureau's  matter,  supplemented  it  with 
long  articles  of  their  own  writing,  urging  the  sale  of  bonds  upon  their 
readers.  The  Chicago  Herald,  edited  by  James  Keeley,  gave  over 
the  entire  editorial  page  for  one  issue  to  discussions  of  Liberty  Loan 
subscriptions.     Xor  in  newspaper  publicity  alone  was  the  great  gen- 


430  FINANCING  AN  EMPIRE 

erosity  of  America's  business  men  shown.  Every  emergency,  no 
matter  how  professional  the  talent  required,  was  met.  At  one  time 
a  shipment  of  posters  from  Washington  was  delayed  and  the  need 
was  immediately  filled  by  Chicago's  advertising  men  whose  artists 
produced  and  had  printed  seven  excellent  posters  in  record  time. 
Also  when  it  was  found  that  it  would  cost  some  fourteen  thousand 
dollars  merely  to  have  posters  distributed  by  professional  agencies 
throughout  the  Seventh  Federal  Reserve  district,  bankers  took  this 
distribution  upon  themselves  and  it  was  accomplished  without  cost. 

Mention  should  be  made  in  this  connection  of  the  organization 
of  "Four-Minute  Men,"  who  gave  short  talks  on  Liberty  Bonds  to 
practically  every  audience  assembled  during  war  years.  This,  which 
later  became  a  national  institution,  probably  the  largest  body  of 
speakers  ever  organized,  was  first  conceived  by  a  group  of  busi- 
ness men  in  Chicago  in  March,  1917.  Donald  M.  Ryerson  of 
Chicago  was  first  president  of  the  organization  and  later,  when  it 
was  taken  over  as  an  institution  of  the  government,  he  went  to 
Washington  to  take  charge  there.  The  first  "four-minute"  speech 
was  given  in  the  Grand  Opera  House  in  Chicago  on  April  1,  1917, 
by  Mr.  Ryerson.  Before  long  the  "Four-Minute  Men"  had  not 
only  invaded  every  corner  of  the  country,  but  were  also  to  be  found 
in  the  Philippines,  Hawaii,  Guam,  and  the  Canal  Zone.  Throughout 
its  existence  the  organization  was  under  the  guidance  of  a  repre- 
sentative of  the  city  which  launched  it,  for  when  Mr.  Ryerson  re- 
signed to  go  into  training  at  Annapolis,  he  was  succeeded  by  William 
McCormick  Blair  of  Chicago  as  National  Director. 

So  efficient  was  the  First  Liberty  Loan  organization  in  Chicago 
that,  in  spite  of  the  fact  that  the  Seventh  Federal  Reserve  district 
was  composed  in  large  part  of  agricultural  communities  whose  people 
were  not  accustomed  to  bonds  as  a  business  investment  and  the  popu- 
lation of  which  was  so  widely  scattered  that  unusual  methods  of  pub- 
licity had  to  be  resorted  to,  the  assigned  quota  for  every  loan  except 
the  first  was  greatly  exceeded  in  each  of  the  six  territorial  divisions 
of  the  district.  Even  on  the  First  Loan  the  Chicago  and  Cook 
County  section  exceeded  its  quota  by  seventy-one  per  cent  which, 
with  the  help  of  Michigan — the  only  other  section  to  exceed  its  quota 
—brought  the  total  for  the  Seventh  Federal  Reserve  district  to 
$351,564,650  instead  of  the  required  $298,000,000.  This  put  the 
Seventh  district  in  second  place,  with  only  Xew  York  ahead,  and  it 
maintained  this  position  throughout  all  five  campaigns. 


HISTORY  OF  BANKING  IN  ILLINOIS  .        431 

Although  at  first  the  Executive  Committee  had  taken  steps  to 
create  local  organizations  in  every  city  having  a  population  of  five 
thousand  or  more,  it  was  later  found  more  effective  to  work  through 
a  Liberty  Loan  Distribution  Committee,  consisting  of  a  chairman 
for  each  state.  This  committee  was  a  sub-committee  of  the  one  on 
"Distribution  through  Investment  Bankers"  and  was  distinctly  a 
sales  organization.  It  comprised  a  General  Chairman,  Secretary, 
and  Chairmen  for  the  City  of  Chicago  proper,  for  Chicago's  outlying 
and  suburban  districts,  and  for  each  of  the  five  states  in  the  Seventh 
Federal  Reserve  district.  Through  it,  states  were  organized  by  coun- 
ties so  that  even  the  smallest  unit  of  each  community  could  be  reached. 

The  First  Liberty  Loan  campaign  was  concluded  June  15,  1917. 
Only  three  and  one-half  months  later — October  1 — it  was  necessary 
again  to  put  the  campaign  machinery  into  motion,  this  time  to  raise 
three  billion  dollars.  Meantime,  however,  much  time  and  thought 
had  been  given  to  the  experience  obtained  from  the  first  campaign 
and  a  number  of  improvements  were  made.  As  the  Federal  Reserve 
Bank  was  the  medium  through  which  the  Chicago  Liberty  Loan  or- 
ganization received  instructions  and  guidance  from  the  government, 
it  was  important  that  the  chairman  of  the  Board  of  Directors  and 
the  governor  of  the  bank  be  officers  of  the  Liberty  Loan  Executive 
Committee.  Governor  McDougal,  who  had  been  chairman  during 
the  First  Loan  was  now  succeeded  by  Chairman  of  the  Board  W. 
A.  Heath,  and  Mr.  McDougal  assumed  the  position  of  vice-chairman 
which  place  had  been  held  by  Mr.  Heath  during  the  First  Loan 
campaign.  The  membership  of  the  Executive  Committee  comprised 
executives  of  representative  banks  and  bond  houses  and  a  representa- 
tive of  the  women  in  the  district.  This  committee  had  supervision 
over  all  active  committees  and  from  its  membership  was  appointed 
Directors  of  Sales,  Publicity  and  Public  Speaking.  There  was  a 
general  broadening  of  the  structure  until  it  effectively  penetrated 
every  class  and  community  of  the  district.  As  a  result,  the  number 
of  actual  subscribers  was  tripled  and,  although  $3.5 1,564, 650  had  just 
been  given  to  the  First  Loan,  the  District  now  subscribed  an  addi- 
tional $585,786,800. 

By  the  time  the  Third  Loan  campaign  was  launched — April  6, 
1918 — war  time  commercial  activities  had  become  sufficiently  active 
to  absorb  much  credit.  The  three  billions  now  asked  by  the  govern- 
ment was  in  all  probability  the  hardest  to  secure.  However,  the 
campaign  organization  used  in  the  Second  Loan  had  proved  efficient, 


432  FINANCING  AN  EMPIRE 

few  changes  now  were  needed,  the  workers  were  experienced,  and 
it  was  possible  for  those  in  charge  to  give  more  of  the  personal  touch 
than  heretofore.  On  May  4,  less  than  a  month  after  its  inception, 
the  campaign  closed  with  flattering  results,  both  as  to  over-subscrip- 
tions and  distribution.  This  time  the  number  of  actual  subscribers 
was  very  nearly  twice  that  of  the  Second  Loan.  The  average  sub- 
scription on  each  campaign  so  far  had  also  grown  smaller — an  in- 
dication of  the  fact  that  every  American,  and  not  only  the  man  with 
money,  was  finding  a  way  to  do  his  bit  financially. 

Bankers  and  others  who  had  wondered  how  the  first  two  billion 
dollar  loan  could  be  raised  little  thought  that  within  less  than  a  year 
and  a  half  they  would  he  asked  to  secure  six  billions.  By  the  time 
this  amount  was  asked  for  the  Fourth  Loan — September  28,  1918— 
however,  they  had  come  to  realize  something  of  the  strains  that  Amer- 
ican credit  could  stand  and  that,  with  intense  effort  and  a  perfect 
selling  organization,  this  stupendous  amount  could  be  raised.  The 
Seventh  Federal  Reserve  district  was  assigned  a  quota  of  eight 
hundred  and  seventy  million  of  the  Fourth  Liberty  Loan.  Less  than 
five  months  had  elapsed  since  the  close  of  the  difficult  Third  cam- 
paign, but  by  now  the  publicity  of  three  campaigns  was  having  its 
cumulative  effect,  the  entire  organization  was  in  excellent  working 
order,  and  it  was  possible  to  put  the  country's  need  effectively  before 
every  man,  woman,  and  child  of  the  district.  Even  the  obstacle  pre- 
sented by  the  fact  that  the  German  armies  were  showing  signs  of 
breaking  and  the  people  of  America  were  experiencing  something 
of  a  "let  down"  was  overcome.  When  the  campaign  ended  on  the 
nineteenth  day  of  October,  the  largest  loan  ever  attempted  in  the 
history  of  the  world  had  been  oversubscribed  by  $989,047,000.  The 
Seventh  district  alone  had  exceeded  its  quota  by  11.40  per  cent,  its 
total  subscriptions  amounting  to  $969,209,000.  The  number  of 
Seventh  district  subscribers  increased  over  the  previous  loan  by  about 
one-fifth  and,  because  of  the  large  amount  needed,  the  average  amount 
of  each  subscription  had  also  materially  increased. 

Bankers  went  through  a  period  of  some  pessimism  immediately 
before  the  Victory  Loan  was  launched  on  April  21,  1919,  which  was 
subsequent  to  the  Armistice.  It  had  been  suggested  that  another 
six  billion  dollars  would  in  all  probability  be  required  and  men  in 
active  touch  with  financial  affairs  did  not  see  how  the  patriotism  of 
the  country  could  again  carry  over  a  loan  of  this  size  on  terms  similar 
to  those  previously  made,  now  that  the  strain  of  actual  warfare  had 


HISTORY  OF  BANKING  IN  ILLINOIS  433 

been  removed.  However,  with  the  final  announcement  that  only 
four  and  one-half  billion  dollars  would  be  asked  and  that  the  sub- 
scriber might  choose  between  a  four  and  three-quarters  per  cent 
interest  rate  with  limited  tax  exemption  or  three  and  three-quarters 
per  cent  with  attractive  tax  exemption  features,  enthusiasm  promptly 
returned  and  it  was  then  that  the  one-time  pessimistic  bankers  had 
to  be  guarded  lest  they  permit  too  large  a  portion  of  their  own  work- 
ing funds  to  go  to  the  government.  After  the  campaign  closed  on 
May  10,  it  was  found  that  the  Seventh  district,  which  had  been  given 
a  quota  of  $652,500,000,  had  actually  subscribed  for  $772,046,550. 
This  amounted  to  118  per  cent  of  the  assigned  quota,  while  the  country 
as  a  whole  subscribed  to  only  116  per  cent  of  its  assigned  quota. 

First,  because  it  seemed  that  some  way  must  be  found  to  keep 
idle  funds  in  small  amounts  from  being  diverted  to  the  purchase  of 
luxuries,  the  manufacture  of  which  would  deprive  necessary  industry 
of  its  required  man  power,  and  later,  because  war  expenses  had  be- 
come so  heavy  that  all  available  money,  even  down  to  the  last  twenty- 
five  cent  piece  was  earnestly  needed,  the  War  Savings  Stamp  cam- 
paign was  maintained  at  almost  constant  high  pressure.  Although 
only  a  small  amount  was  raised  in  this  way,  as  compared  to  the  bil- 
lions secured  from  the  sale  of  Liberty  Bonds,  nevertheless,  those 
who  pushed  the  sale  of  War  Savings  Stamps  deserve  great  credit  for 
their  unceasing  efforts.  It  took  constant  vigilance,  great  amounts 
of  effective  publicity,  and  tremendous  energy  to  maintain  enthusiasm 
at  that  pitch  where  even  the  twenty-five  cent  pieces  of  the  nation 
would  continue  to  pour  into  the  coffers  of  the  government.  In  these 
Savings  Stamps — worth  four  dollars  each  at  the  time  of  purchase 
and  five  dollars  on  maturity — and  the  twenty-five  cent  Thrift  Stamps 
which  might  be  accumulated  in  lots  of  sixteen  for  their  purchase,  were 
provided  a  means  whereby  every  loyal  American  could  contribute 
to  war  financing.  Fifty  dollars  was  the  smallest  Liberty  Bond  unit. 
Even  when  sold  on  partial  payments,  this  sum  was  too  large  for 
some  purses.  War  Savings  Stamps  enabled  even  the  children  of 
the  nation  to  contribute  their  share  and,  in  return,  receive  a  govern- 
ment security  which  would  increase  in  par  value  by  about  twenty  per 
cent  within  the  subsequent  five  years. 

It  is  fortunate  for  America  that  .the  Federal  Reserve  System 
had  been  established  long  enough  before  our  entry  into  the  war  to 
be  on  a  working  basis  efficient  for  this  purpose.  In  his  report  for  the 
year  1917,  Secretary  of  the  Treasury  McAdoo  said  in  part  that  the 


434  FINANCING  AN  EMPIRE 

System  had  been  "of  incalculable  value  during  this  period  of  war 
financing  on  the  most  extensive  scale  ever  undertaken  by  any  nation 
in  the  history  of  the  world.  It  would  have  been  impossible  to  carry 
through  these  unprecedented  financing  operations  under  our  old  bank- 
ing system.  The  effective  machinery  afforded  by  the  Federal  Re- 
serve banks  has  permitted  the  government  to  execute  its  plans  with- 
out a  tremor  of  disturbance." 

On  July  1,  1916,  the  entire  outstanding  bonded  indebtedness  of 
the  United  States  Government  amounted  to  only  $1,378,124,593. 
Almost  all  of  this  amount  was  held  by  financial  institutions  or  men 
of  wealth.  During  the  war,  that  part  of  the  state  of  Illinois  which 
lies  in  the  Seventh  Federal  Reserve  district  alone  subscribed  to 
$1,450,173,950,  or  more  than  the  country's  total  bonded  debt  in  1916. 
In  this  connection  it  is  also  interesting  to  note  that  Illinois'  subscrip- 
tion to  the  war  was  even  greater  than  that  of  the  whole  Dominion 
of  Canada  which  raised  only  approximately  $1,250,000,000.  As  a 
state,  Illinois  raised  her  share  of  the  First  Loan — the  percentage  by 
states  is  not  known — stood  in  the  fourth  place  on  the  Second,  and  in 
third  place  on  each  of  the  last  three  campaigns.  The  Seventh  Fed- 
eral Reserve  district,  which  centered  at  Chicago,  stood  second  in  the 
nation  on  each  of  the  five  loans.  Its  subscriptions  were  exceeded  only 
by  those  of  the  Second  district  which  included  the  City  of  New  York. 


CHAPTER  XXIV 
CERTIFICATES  OF  INDEBTEDNESS 

History  of  certificates  of  indebtedness  in  America  prior  to  the  World  War — Sale  during 
the  World  War  handled  by  the  Federal  Reserve  banks — Precautions  taken  to  avoid 
disturbing  the  money  market — Part  played  by  the  Federal  Reserve  Bank  of  Chicago 
— Management  of  Melvin  A,  Traylor — Certificates  of  Indebtedness  after  the  con- 
clusion of  the  World  War. 

A  notable  feature  in  the  financing  of  the  World  War  was  the 
large  part  played  by  the  negotiable  short-term  debt  obligations  called 
"certificates  of  indebtedness." 

A  certificate  of  indebtedness  may  be  described  as  a  freely  nego- 
tiable, short-term,  government  obligation.  It  differs  from  a  bond 
only  in  the  shortness  of  maturity  and  from  a  demand  note  in  its 
nominal  non-convertibility  on  presentation.  In  the  history  of  the 
country  such  certificates  have  been  issued  in  almost  every  conceivable 
form.  Some  of  them  have  borne  interest,  others  have  not,  some  have 
had  definite  maturity  dates,  while  others  were  payable  at  the  option 
of  the  government  and  those  that  did  have  definite  maturities  varied 
all  the  way  from  a  few  days  to  several  years.  Some  of  these  cer- 
tificates have  been  made  receivable  for  all  and  some  for  only  certain 
specified  public  dues.  Some  were  secured  by  assigned  tax  revenues 
or  prospective  loan  proceeds,  while  others  were  protected  only  by 
pledge  of  public  faith.  Some  were  issued  merely  for  the  direct  dis- 
charge of  certain  public  debts;  others  were  marketed  much  as  is  a 
funded  obligation.  Such  paper  may  even  be  given  certain  circula- 
tion privileges  and  some  has  had  full  legal  tender  qualities. 

During  the  first  century  and  a  quarter  of  its  existence,  the  United 
States  Treasury  issued  short-term  negotiable  obligations  which  cor- 
responded to  certificates  of  indebtedness  on  only  six  occasions.  The 
first  four  of  these  followed  an  inability  of  the  government  to  sell 
sufficient  long-term  bonds  to  meet  pressing  needs.  The  fifth  issue 
was  authorized  in  anticipation  of  needs  for  the  Spanish- American 

435 


436  FINANCING  AX  EMPIRE 

War,  but  hostilities  were  of  such  short  duration  and  the  trend  of 
events  so  certain  that  the  certificates  were  not  actually  issued  at  that 
time.  The  sixth  was  to  relieve  a  money  stringency.  These  issues 
were  variously  known  as  "Treasury  Notes,"  "Treasury  Bills,"  "Bills 
of  Credit,"  and  "United  States  Notes." 
The  six  occasions  were  as  follows: 

1.— The  War  of  1812 

Shortly  before  the  outbreak  of  this  war  the  Colonies  had  gone 
through  such  difficulties  as  a  result  of  their  paper  currency  that  they 
were  violently  opposed  to  any  measure  which  might  permit  the  states 
of  the  Union  to  have  any  authority  for  issuing  bills  of  credit.  How- 
ever, it  was  recognized  that  the  time  might  come  when  there  could  be 
a  legitimate  need  for  these  issues,  so  that,  after  a  heated  debate,  the 
Federal  Convention  of  1789  provided  that,  while  the  states  were  pro- 
hibited from  making  such  issues,  Congress  might  do  so  under  the 
general  grant  "to  borrow  money  on  the  credit  of  the  United  States." 
Even  this  permission  was  secured  only  through  the  fact  that  the  one 
faction  in  the  debate  believed  that  it  effectively  closed  the  door  to 
paper  money,  while  the  other  was  of  the  opinion  that  it  permitted 
issues  only  in  the  event  of  great  need. 

Although  this  question  was  thus  settled  in  1789,  it  was  not  until 
1812  that  advantage  was  taken  of  it.  Then,  after  a  funded  loan 
to  cover  the  war  deficit  had  met  with  disappointing  public  response, 
authority  was  sought  to  issue  treasury  notes  for  the  unsubscribed 
amount.  Although  the  measure  was  much  opposed  in  Congress,  the 
situation  was  so  critical  that  something  had  to  be  done.  Eventually 
the  opposition  gave  in  and  on  June  30,  1812,  an  act  was  approved 
empowering  the  President  to  issue  five  and  two-fifths  per  cent  notes 
maturing  in  one  year  and  not  to  exceed  five  million  dollars  in  amount. 
These  notes  were  to  be  receivable  for  duties  and  taxes  in  payment 
for  public  lands.  The  full  five  million  was  issued  and  six  months 
later  (February  25,  1813)  an  additional  five  million  was  authorized 
for  the  purpose  of  covering  that  part  of  the  war  debt  which  had  not 
been  met  by  a  sixteen  million  dollar  loan  of  1813.  In  March,  1814, 
ten  million  more  was  authorized  and  issued,  and  in  December  ten 
and  one-half  million  additional  was  authorized  of  which  $8,314,400 
was  issued.  In  February,  181.5,  the  large  sum  of  twenty-five  mil- 
lion was  authorized,  but  this  also  was  more  than  the  situation  re- 


HISTORY  OF  BANKING  IN  ILLINOIS  -         437 

quired,  and  of  this  only  $4,969,400  was  issued  in  denominations  of 
one  hundred  dollars  and  $3,392,994  in  smaller  amounts.  All  five 
issues  made  during  the  War  of  1812  amounted  to  $36,080,794.  The 
total  authorizations  covering  them  had  aggregated  sixty  and  one- 
half  million  dollars. 

2.— The  Panic  of  1837 

The  second  issue  of  short-term  government  financing  came  after 
the  panic  of  1837,  when  there  occurred  a  succession  of  annual  def- 
icits. In  three  years'  time  the  expenditures  of  the  government  had 
doubled  and  there  had  been  an  actual  shrinkage  in  revenue.  This 
was  so  pronounced  that  between  the  years  1837  and  1843  there  was 
only  one  year  in  which  the  Treasury  did  not  face  a  considerable 
deficit.  Furthermore,  after  the  charter  of  the  Bank  of  the  United 
States  had  expired  in  1836,  there  followed  a  general  suspension  which 
resulted  in  a  marked  money  stringency.  Therefore,  to  meet  both 
the  stringency  and  the  deficit,  one-year  treasury  notes  were  issued 
which  were  not  to  bear  more  than  six  per  cent  interest.  These  were 
authorized  to  an  amount  of  ten  million  dollars,  and  were  to  be  used 
in  payment  of  public  creditors  and  to  be  accepted  for  all  taxes  and 
dues.  A  large  part  of  this  issue  carried  merely  a  nominal  rate  of 
interest. 

With  this  precedent  established,  no  less  than  thirteen  issues  and 
reissues,  amounting  in  all  to  $47,002,900,  were  made  under  eight 
successive  acts  between  1837  and  1844.  These  notes  met  a  situation 
in  which  neither  bond  issues  nor  bank  loans  were  feasible,  and  the 
system  worked  so  well  that  it  was  generally  agreed  that  treasury 
notes,  such  as  these  which  had  a  definite  maturity  date,  were  de- 
cidedly different  from  those  payable  on  demand;  that  the  maturing 
notes,  unlike  the  others,  were  not  just  that  much  more  paper  money 
thrown  upon  the  country,  and  were  therefore  to  be  commended  for 
use  in  future  emergencies. 

3. — The  War  with  Mexico,  1846 

The  declaration  of  war  against  Mexico  on  May  13,  1846,  came 
shortly  after  a  reduction  in  the  tariff.  Therefore,  Congress  author- 
ized an  issue  of  treasury  notes  to  provide  for  the  anticipated  deficit 
which  might  be  expected  to  result  from  both  sources.     These  treas- 


438  FINANCING  AN  EMPIRE 

ury  notes,  together  with  an  issue  of  six  per  cent  stock  made  at  the 
same  time,  were  not  to  exceed  an  amount  of  ten  million  dollars.  The 
notes  were  similar  to  those  of  the  issues  of  1837  to  1844,  and  the 
same  plates  were  used  in  printing  them.  Their  denominations  were 
not  less  than  fifty  dollars  and  they  were  re-issuable  within  the  term 
of  maturity.  They  were  to  be  given  in  direct  payment  to  such  public 
creditors  as  would  receive  them  and  were  also  to  be  used  by  the 
Treasury  in  borrowing  money  to  be  applied  on  public  debts. 

Six  months  later  the  amount  was  increased  to  ten  million  of  the 
notes,  and  a  second  issue  of  twenty-three  million  of  one  or  two-year 
notes  was  authorized,  subject  to  reissue  and  receivable  in  payment 
of  all  public  dues.  These  last  were  callable  on  sixty  days'  notice  and 
were  fundable  into  six  per  cent  bonds.  In  all,  there  were  issued  in 
the  two  years  following  the  declaration  of  war  $7,687,800  of  the  notes 
under  the  act  dated  July  22,  1846,  and  $26,122,100,  including  re- 
issues, under  that  of  January  28,  1847.  All  of  these  carried  an  inter- 
est rate  of  five  and  two-fifths  or  six  per  cent,  with  the  exception  of 
$1,766,450  of  the  earlier  issue  which  bore  a  nominal  rate  of  one  mill 
per  cent  a  year.  ' 

4.— The  Panic  of  1857 

After  specie  payments  were  suspended  as  a  result  of  the  panic 
of  1857,  what  had  been  a  satisfactory  treasury  balance  rapidly  ap- 
proached a  condition  of  being  a  disturbing  deficit.  The  closing  of 
banks  had  brought  business  so  close  to  a  stand-still,  that  revenues 
were  cut  off  to  an  alarming  extent.  Therefore,  to  tide  over  this  sit- 
uation, Congress,  on  December  23,  1857,  authorized  the  issue  of  one- 
year  treasury  notes  "for  such  sum  as  the  exigencies  of  the  public 
service  might  require."  However,  this  amount  was  not  to  exceed 
twenty  million  dollars  outstanding  at  any  one  time.  The  notes  were 
to  be  issued  at  par  in  denominations  of  not  less  than  one  hundred 
dollars  with  interest  at  not  more  than  six  per  cent.  They  were  to 
be  receivable  for  all  public  dues  and,  when  redeemed,  might  be  re- 
issued within  the  period  of  final  maturity.  The  entire  twenty  mil- 
lion was  issued  and  together  with  reissues  a  total  amount  of  $52,- 
778,900  was  put  out  at  rates  varying  from  three  to  six  per  cent. 

5.— The  Civil  War— 1860 

As  some  of  the  treasury  notes  issued  in  1857  were  still  outstand- 
ing, Congress  authorized   a   loan  on  June  22,   1860,  of  twenty-one 


HISTORY  OF  BANKINOx  IN  ILLINOIS  "         439 

million  dollars  in  ten-  twenty-  year  bonds.  While  this  loan  was  be- 
ing placed,  however,  the  approaching  Civil  war  upset  the  money 
market  to  such  an  extent  that  it  was  impossible  to  sell  more  than  one- 
third  of  the  issue.  To  meet  the  deficit,  Congress  in  December  au- 
thorized an  issue  of  one-year  treasury  notes  in  denominations  of  not 
less  than  fifty  dollars  to  an  aggregate  of  not  more  than  ten  million 
dollars.  These  were  to  have  carried  a  six  per  cent  interest  rate,  but 
it  was  provided  that  the  Secretary  of  the  Treasury  might  change  this 
rate  if  he  found  it  necessary.  Apparently  this  necessity  was  very 
great  for  only  some  seventy  thousand  were  ever  issued  at  six  per 
cent.  The  remainder  commanded  all  the  way  from  seven  to  twelve 
per  cent.  Nearly  half  of  the  the  issue  carried  the  higher  rate  and 
bids  were  actually  received,  but  not  accepted,  at  rates  ranging  from 
fifteen  to  thirty-six  per  cent. 

The  act  of  March  2,  1801,  was  the  first  emergency  revenue  meas- 
ure which  was  expected  to  supply  funds  for  the  Civil  war.  It  pro- 
vided that  in  the  event  the  bonds  offered  could  not  be  floated  in 
sufficient  amount,  treasury  notes  to  mature  in  two  years,  unless  called 
for  earlier  redemption,  might  be  issued.  These  actually  were  issued 
to  an  amount  of  $35,364,450. 

On  March  1,  1862,  a  bill  was  passed  allowing  the  issue  of  certifi- 
cates of  indebtedness  for  the  amount  due  on  audited  and  settled  ac- 
counts. It  authorized  the  Secretary  of  the  Treasury  to  issue  certifi- 
cates for  the  whole  or  any  part  of  the  accounts  due  him  to  any  cred- 
itor who  would  accept  such  payment.  These  certificates  were  to 
carry  six  per  cent  and  to  mature  in  one  year,  or  earlier  if  the  gov- 
ernment so  chose.  A  number  of  other  acts  authorizing  such  issues 
followed,  and  during  the  last  three  years  of  the  war  substantial 
amounts  of  short-term  paper  Mere  issued;  these  amounted  to  some 
fifty  million  dollars  in  1862,  one  hundred  and  fifty-seven  million  in 
1863,  one  hundred  and  sixty-nine  million  in  1864,  and  one  hundred 
and  thirty-one  million  in  1865.  All  were  used  either  as  collateral 
in  procuring  bank  loans,  or  directly  as  a  form  of  currency.  At  the 
end  of  1866  twenty-six  million  four  hundred  thousand  dollars  worth 
of  these  certificates  were  still  outstanding  and  practically  all  were 
paid  off  within  the  following  twelve  months. 

6. — Certificates  Authorized  in  1898  Issued  in  1907 

In  anticipation  of  the  expense  of  the  Spanish-American  War, 
an  act  was  passed  on  June  13,  1898,  which  authorized  the  Secretary 


440  FINANCING  AN  EMPIRE 

of  the  Treasury  to  issue  certificates  of  indebtedness  in  denominations 
of  fifty  dollars  and  multiples  thereof  at  an  interest  rate  of  not  more 
than  three  per  cent  and  with  a  maturity  of  not  more  than  one  year. 
In  all,  this  issue  was  to  be  limited  to  an  outstanding  volume  of  one 
hundred  million  dollars.  It  was  expected  that  these  certificates 
would  meet  the  needs  of  the  Treasury  until  the  proceeds  of  war  taxes 
and  loans  could  be  made  available.  However,  the  war  was  of  such 
short  duration  and  so  successful  that  it  never  became  necessary  to 
make  use  of  the  funds. 

Nine  years  later,  in  the  great  money  stringency  that  accompa- 
nied the  panic  of  1907,  the  Act  of  1898  was  put  to  good  use.  Of 
the  one  hundred  million  dollars  authorized  by  it,  $15,436,500  in  these 
certificates  were  actually  issued  and  were  used  by  the  banks  for  in- 
creasing circulation  and  for  securing  public  deposits.  On  March 
3,  1908,  the  Treasury  purchased  $1,250,000  of  these  certificates  and 
the  remainder  was  called  for  redemption  at  maturity — November 
20,  1910. 

World  War 

Up  to  the  time  of  America's  participation  in  the  World  war 
the  Federal  Reserve  banks,  which  were  to  play  so  great  a  part  in 
the  distribution  of  certificates  of  indebtedness,  had  been  limited  in 
their  fiscal  functions  to  receiving  funds  from  government  collectors 
of  customs  and  internal  revenue,  and  to  paying  warrants  drawn  upon 
the  Treasurer  of  the  United  States  and  coupons  on  United  States 
bonds.  Upon  our  entry  into  the  war,  however,  these  functions  and 
responsibilities  were  expanded  to  include  the  sale  and  redemption  of 
certificates  of  indebtedness,  liberty  bonds,  and  war  savings  certifi- 
cates, and  to  take  care  of  all  the  details  connected  with  this  financing. 
The  Federal  Reserve  banks  entered  into  this  new  phase  of  their  fiscal 
duties  in  so  vigorous  a  way  that  soon  practically  all  other  depart- 
ments had  been  made  subordinate  to  those  which  were  assuming  the 
tremendous  task  of  successfully  financing  the  war. 

The  first  certificates  of  indebtedness  handled  by  these  banks  were 
authorized  under  the  revenue  act  of  March  3,  1917,  which  permitted 
the  Secretary  of  the  Treasury  to  borrow  from  time  to  time  "such 
sum  or  sums  as,  in  his  judgment,  may  be  necessary  to  meet  public 
expenditures,  and  to  issue  therefor  certificates  of  indebtedness  in 
such  form  and  in  such  denominations  as  he  may  prescribe."  The 
rate  of  interest  on  these  certificates  was  not  to  exceed  three  per  cent, 


HISTORY  OF  BANKING  IN  ILLINOIS  '         441 

their  maturity  was  not  to  be  more  than  one  year  from  the  date  of 
issue,  and  not  more  than  three  hundred  million  dollars,  par  value, 
of  the  certificates  were  to  be  outstanding  at  any  one  time. 

Under  this  authority,  the  Treasury  borrowed  fifty  million  dol- 
lars from  the  twelve  Federal  Reserve  banks  on  March  27,  in  antici- 
pation of  taxes  due  the  following  June.  Of  this  amount  the  Fed- 
eral Reserve  Bank  of  Chicago  was  allotted  five  million  dollars,  for 
all  of  which  it  subscribed.  This  first  loan  differed  from  all  that  were 
to  follow  in  that  it  was  purchased  outright  by  the  Federal  Reserve 
hanks  and  held  by  them.  With  all  subsequent  issues,  the  Federal 
Reserve  banks  acted  chiefly  as  a  sales  organization  for  the  purpose 
of  securing  a  wide  distribution  of  the  certificates  among  banks  in 
their  respective  districts. 

Since,  even  with  the  aid  of  this  initial  loan  of  fifty  million  dollars, 
it  would  not  be  possible  for  the  country,  after  its  entry  into  the  war, 
to  rely  entirely  upon  the  income  from  internal  revenue  and  customs 
duties,  new  sources  had  to  be  found  at  once,  both  for  the  use  of  the 
United  States  and  also  for  such  assistance  as  the  Allies  would  re- 
quire. As  a  first  step  in  meeting  this  need,  Congress  passed  an  Act, 
approved  on  April  24.  1917,  authorizing  an  issue  of  Liberty  Loan 
bonds  amounting  to  not  more  than  five  billion  dollars  and  carrying 
an  interest  rate  of  not  more  than  three  and  one-half  per  cent.  It 
also  specified  that  these  bonds  were  to  be  convertible  into  those  of 
any  subsequent  issue  which  might  carry  a  higher  interest  rate. 

To  facilitate  this  program  and  also  to  take  steps  for  avoiding 
such  a  disturbance  of  the  money  market  as  must  result  from  borrow- 
ing several  billion  dollars  at  one  time,  the  same  Act  included  an 
authorization  for  the  issue  of  certificates  of  indebtedness  of  which 
not  more  than  two  billion  dollars,  par  value,  were  to  be  outstanding 
at  any  one  time.  These  likewise  were  to  carry  interest  not  to  exceed 
three  and  one-half  per  cent.  As  a  result  of  this  authorization,  the 
first  certificates  of  indebtedness  issued  in  anticipation  of  an  issue  of 
Liberty  Loan  bonds  were  offered  on  April  25,  1917.  These  certifi- 
cates were  actually  issued  in  an  amount  of  $268,20.5,000,  and  of  this 
amount  the  Federal  Reserve  Bank  of  Chicago  took  $16,400,000, 
which  Mas  distributed  among  one  hundred  and  thirty-five  subscribers. 

Subsequently,  it  was  found  best  to  increase  the  amount  of  these 
certificates  outstanding  at  any  one  time  and  to  authorize  issues  at 
somewhat  regular  intervals.  By  this  plan  it  was  possible  to  keep 
the  demands  for  money  on  the  part  of  the  government  in  a  rather 


442  FINANCING  AN  EMPIRE 

close  adjustment  with  the  return  of  funds  to  the  banks  of  the  nation 
as  a  result  of  government  expenditures,  and  thereby  maintain  a  con- 
dition of  stability  on  the  money  market.  In  this  way  it  also  became 
possible  for  the  Treasury  Department  to  build  up  and  maintain 
suitable  deposits  in  all  parts  of  the  country,  both  in  the  Federal  Re- 
serve banks  and  in  other  designated  depositaries. 

Throughout  most  of  the  war  period,  therefore,  certificates  were 
issued  at  approximately  two-week  intervals  in  amounts  which 
climbed  from  a  low  point  of  one  and  one-quarter  billion  dollars  of 
total  certificates  outstanding  at  one  time  in  1917,  to  a  high  outstand- 
ing amount  of  more  than  six  and  one-quarter  billion  dollars  in  April, 
1919,  and  then  again  declined  during  the  remaining  period  of  the 
war  and  the  long  siege  of  debt  payment  that  followed. 

In  anticipation  of  the  first  Liberty  Loan  bonds,  four  issues  of 
certificates  of  indebtedness  were  made,  aggregating  $868,205,000. 
Of  this  amount  the  Federal  Reserve  Bank  of  Chicago  distributed 
$77,693,000  among  a  total  of  1,348  subscribers. 

In  making  these  offerings  it  is  probable  that  the  Federal  Reserve 
Bank  of  Chicago  met  with  more  sales  resistance  than  any  other  Fed- 
eral Reserve  district,  and  certainly  it  met  with  a  great  deal  more 
resistance  than  in  similar  financing  abroad.  This  was  due  to  the 
fact  that  the  territory  including  the  state  of  Illinois  contains  more 
banks  than  any  other  Federal  Reserve  district  of  the  country,  and 
these  banks  serve  a  district  that  is  mainly  agricultural. 

Were  such  sales  efforts  to  be  made  in  England,  France,  or  Can- 
ada, where  a  system  of  branch  banking  had  been  highly  developed, 
the  problem  would  be  comparatively  simple,  for  then  only  the  small 
number  of  parent  banks  would  have  to  be  consulted  and  thereby  the 
whole  system  could  be  reached.  Even  in  the  district  served  by  the 
Federal  Reserve  Bank  of  New  York  the  problem  was  greatly  sim- 
plified by  the  fact  that  there  a  comparatively  small  number  of  banks 
own  so  large  a  part  of  the  total  banking  resources  of  the  country 
that  large  amounts  of  certificates  could  be  distributed  with  com- 
paratively small  effort. 

The  problem  confronted  by  the  Federal  Reserve  Bank  of  Chi- 
cago, however,  indicated  in  an  extreme  way  the  difficulty  of  secur- 
ing perfect  coordination  in  a  system  of  highly  developed  individual 
banking.  Even  though  the  Federal  Reserve  System  had  been  in 
operation  for  three  years  at  this  time  and  held  within  its  member- 
ship two-thirds  of  the  banking  resources  of  the  country,  it  carried 


HISTORY  OF  BANKING  IN  ILLINOIS  m         443 

only  one-quarter  of  the  total  number  of  individual  banks  on  its 
membership  lists.  This  plainly  indicates  to  what  a  large  extent  very 
small  independent  banks  existed  in  America.  In  the  agricultural 
sections  served  by  the  Federal  Reserve  Bank  of  Chicago,  this  con- 
dition was  far  more  extreme  than  in  the  nation  as  a  whole. 

Furthermore,  the  small  bankers  of  Illinois  and  the  surrounding 
country  had  run  their  own  affairs  in  their  own  way  for  so  many 
years,  that  they  were  unable  to  think  in  terms  of  the  magnitude  of 
war  financing.  Most  of  them  had  long  held  the  opinion  that  a  prop- 
erly conducted  bank  should  not  show  any  appreciable  amount  of 
bills  payable,  and  so  they  could  not  contemplate  with  equanimity 
the  withdrawal  of  any  large  amount  of  their  resources  even  on  the 
security  of  the  United  States  Government.  They  were  not  at  first 
able  to  understand  that  in  time  of  war  it  was  for  their  own  good  and 
that  of  their  communities  to  give  the  government  first  call  on  their 
resources  and  they  held  back  their  funds  against  the  needs  of  the 
farmers  in  their  seasonal  borrowings. 

With  constant  urging,  however,  the  Federal  Reserve  Bank  of 
Chicago  succeeded  in  increasing  the  number  of  subscribers  for  suc- 
cessive issues  until  the  one  hundred  and  thirty-five  of  the  first  issue 
in  anticipation  of  the  first  Liberty  Loan  bonds  reached  a  total  of 
eight  hundred  and  four  on  the  fourth  issue  in  anticipation  of  the  Sec- 
ond Liberty  Loan  bonds — all  in  a  period  of  five  months'  time.  The 
last  two  issues  in  anticipation  of  the  Second  Loan  fell  off  a  bit, 
probably  due  to  the  fact  that  they  came  in  the  month  of  October 
when  there  Mas  a  heavy  demand  for  crop  moving. 

Of  a  total  amount  of  $2,320,493,000  in  certificates  of  indebted- 
ness issued  in  anticipation  of  the  Second  Liberty  Loan,  the  Federal 
Reserve  Bank  of  Chicago  distributed  $1 38,-597,000  to  a  total  of  3,121 
subscribers.  This  met  the  immediate  needs  of  the  Treasury,  but  by 
now  it  Mas  realized  that  extreme  efforts  must  be  expended  if  the  war 
M-as  to  be  Mron,  and  the  methods  so  far  used  by  the  Federal  Reserve 
banks  would,  in  all  probability,  not  meet  such  needs.  Therefore,  the 
committee  in  charge  of  this  work  in  Chicago  agreed  to  appoint  a 
"Director  of  Sales  of  LTnited  States  Certificates  of  Indebtedness," 
Mho  should  be  a  man  of  such  qualities  as  to  enable  him  to  build  up 
an  organization  that  M*ould  make  the  smaller  banks  of  the  district 
eager  to  give  their  funds  to  the  government  to  save  the  country. 

After  this  committee  had  deliberated  for  some  time,  it  decided 
that  James  B.  Forgan,  chairman  of  the  Board  of  Directors  of  the 


444  FINANCING  AN  EMPIRE 

First  National  Bank  of  Chicago,  was  a  man  whose  acquaintance 
with  the  banking  talent  of  the  district  was  so  extended  and  whose 
judgment  of  men  was  so  good,  that  his  advice  should  be  sought  in 
this  important  selection.  Therefore,  the  committee  called  on  Mr. 
Forgan  in  a  body,  stated  its  case,  and  waited  to  see  what  the  impor- 
tant decision  would  be.  Mr.  Forgan  did  not  keep  his  visitors  wait- 
ing long.  He  called  for  a  copy  of  the  Bankers'  Directory,  and 
quickly  running  his  pencil  down  its  pages,  stopped  at  a  name  and 
said,  "Here  is  your  man."  His  pencil  indicated  the  name  of  Melvin 
A.  Traylor,  president  of  the  Live  Stock  National  Bank  of  Chicago. 
Almost  immediately  the  committee  acted  upon  Mr.  Forgan's  sug- 
gestion and  appointed  Mr.  Traylor  to  the  tremendous  task  of  edu- 
cating the  banks  and  farmers  of  the  middle  west  to  the  financial  needs 
of  a  war  in  Europe.  That  the  committee  was  justified  in  seeking 
and  accepting  the  advice  of  Mr.  Forgan  was  plainly  indicated  by 
the  success  Mr.  Traylor  achieved  in  this  work  and  also  by  the  fact 
that  he  later  became  president  of  Mr.  Forgan's  bank. 

The  first  weeks  of  Mr.  Traylor's  directorship  proved  his  task 
far  from  simple.  In  the  first  place,  he  was  young,  and  older  bankers 
of  the  district  sharply  resented  his  prompt  way  of  declaring  them 
"slackers"  if  they  did  not  subscribe  to  full  quotas  allotted  their  banks. 
But  "slackers"  are  what  Mr.  Traylor  conceived  these  men  to  be,  and 
before  long,  with  the  able  help  of  his  two  assistants — L.  L.  Hobbs, 
assistant  cashier  of  the  Live  Stock  National  Bank,  and  E.  L.  Har- 
ris, who  had  been  in  the  investment  business  in  Chicago  and  more 
recently  in  the  aviation  corps  of  the  United  States  Army — these 
bankers  came  to  see  themselves  in  the  same  light  and  knew  that  if 
the  war  was  to  be  won,  Mr.  Traylor's  efforts  must  be  supported. 

Mr.  Traylor  did  not  undertake  this  directorship  until  February, 
1918,  at  which  time  the  first  certificates  in  anticipation  of  the  Third 
Liberty  Loan  were  being  offered.  Between  February  22  and  April 
22  six  issues  were  offered  and  total  subscriptions  obtained  in  the  dis- 
trict amounted  to  $325,338,000,  which  exceeded  the  allotted  quota 
by  $11,338,000.  Whereas  the  highest  number  of  subscribers  secured 
during  previous  loans  had  been  eight  hundred  and  four  for  the  whole 
Seventh  Federal  Reserve  district,  under  Mr.  Traylor's  direction  eight 
hundred  and  seventy-four  banks  in  Illinois  alone  subscribed  to  the 
issue  of  March  20. 

Even  this  was  not  enough  to  satisfy  the  ambitions  of  Mr.  Tray- 
lor and  the  probable  needs  of  a  war  which  must  be  fought  to  the 


MELVIX  A.  TRAYLOR 


HISTORY  OF  BANKING  IN  ILLINOIS  *       445 

utmost  to  be  won.  So  on  June  18,  1918,  just  before  the  first  issue 
of  certificates  of  indebtedness  in  anticipation  of  the  Fourth  Liberty 
Loan,  Mr.  Traylor  called  a  meeting  of  his  organization,  which  con- 
sisted of  Directors  of  Sales  for  each  county  in  the  Seventh  Federal 
Reserve  district,  at  the  Garrick  Theatre  in  Chicago.  Six  hundred 
bankers,  representing  three  hundred  and  thirty-eight  counties,  were 
in  attendance.  Almost  every  one  of  these  men  came  to  the  meeting 
feeling  that  the  weight  of  war  financing  demanded  by  the  gov- 
ernment rested  too  heavily  upon  himself,  his  bank,  and  his  community. 
Doubtless  many  of  these  men  had  made  up  their  minds  to  tell  Mr. 
Traylor  that  his  demands  could  not  be  carried  out  and  that  the  agri- 
cultural middle  west  was  ready  to  "lay  down  on  the  job." 

Mr.  Traylor,  who  perfectly  understood  just  how  these  men  felt, 
himself  arose  before  them  and  addressed  them  with  such  stirring 
words  as  to  make  them  all  understand  how  little  was  asked  of  them 
when  millions  of  other  men  were  giving  their  very  lives  to  the  war. 
In  part  he  said:  "From  my  viewpoint,  there  are  only  two  classes  of 
banks  which  cannot  take  their  quota,  and  who  will  not  take  it  gladly 
and  willingly.  One  of  these  is  the  institution  whose  affairs  have 
been  so  managed  that  it  has  neither  loanable  funds  nor  credit  at 
any  institution,  and  the  other  is  officered  by  men  who  are  unwilling 
to  do  their  part — in  plain  English,  those  who  are  not  one  hundred 
per  cent  American.  It  is  no  use  longer  to  mince  words  or  apologize. 
We  either  give  because  a  way  has  been  provided  for  us  to,  or  we 
can't  because  we  won't." 

Long  before  the  sj:>eaker  had  finished,  the  bankers  present  appre- 
ciated that,  after  all,  the  government  had  as  much  right  to  subject 
their  resources  to  conscription  as  the  lives  of  men,  and  they  knew, 
too,  that  unless  they  made  it  possible  to  win  the  war  without  such 
conscription  of  the  country's  financial  resources,  they  might  expect 
to  have  all  freedom  in  the  matter  of  subscriptions  taken  from  them. 
Therefore,  by  way  of  putting  themselves  on  record  as  fully  in  sym- 
pathy with  Mr.  Traylor's  understanding  of  the  situation,  these  bank- 
ers, who  had  come  believing  that  they  were  already  doing  too  much, 
passed  a  resolution  which  they  addressed  to  Secretary  McAdoo, 
pledging  each  state,  county,  and  individual  bank  in  the  Seventh 
Federal  Reserve  district  to  the  task  of  fulfilling  every  demand  the 
government  might  make  in  floating  the  next  (Fourth)  Liberty  Loan 
and  the  various  issues  of  certificates  of  indebtedness  in  anticipation 
of  it. 


44G  FINANCING  AN  EMPIRE 

Ml*.  Traylor's  talk,  which  was  followed  by  addresses  by  such 
men  as  Paul  M.  Warburg,  vice-governor  of  the  Federal  Reserve 
Board;  J.  B.  McDougal,  governor  of  the  Federal  Reserve  Bank  of 
Chicago;  W.  A.  Heath,  chairman  of  that  bank,  and  Arthur  Rey- 
nolds, then  first  vice-president  of  the  Continental  and  Commercial 
Banks,  formed  the  turning  point  of  the  campaign  for  war  funds  on 
the  security  of  certificates  of  indebtedness.  Afterwards,  those  bank- 
ers who  had  believed  it  impossible  for  their  institutions  to  meet  the 
demands  of  the  Treasury  became  most  enthusiastic  supporters  of 
Government  financing.  As  a  consequence,  on  the  seven  certificate 
issues  in  anticipation  of  the  Fourth  Liberty  Loan,  the  total  sub- 
scriptions from  the  Seventh  Federal  Reserve  district  amounted  to 
one  hundred  and  fifteen  and  one-half  per  cent  of  the  assigned  quota 
of  $574,000,000,  and  in  the  state  of  Illinois  alone,  of  the  thirteen  hun- 
dred and  nine  banks  doing  business,  one  thousand  and  sixty-five  went 
on  record  as  subscribing  to  the  first  issue. 

After  that,  Mr.  Traylor  and  his  assistants  had  little  difficulty 
in  maintaining  the  loyal  enthusiasm  of  their  county  representatives. 
In  fact,  these  men  worked  with  such  diligence  as  to  arouse  the  enthu- 
siasm of  many  others  for  their  cause.  In  some  counties  this  devel- 
oped to  such  an  extent  that  committees  of  bankers  were  organized 
to  call  upon  any  bank  that  was  a  bit  slow  in  taking  up  its  quota.  As 
subscriptions  would  come  into  the  Federal  Reserve  bank,  reports 
were  sent  on  to  the  various  county  directors  and,  in  order  that  each 
county  might  have  a  clean  slate,  last  minute  deficiencies  were  trans- 
mitted to  interested  directors  by  long  distance  telephone;  thus,  lag- 
ging banks  were  brought  into  line  and  the  patriotic  reputation  of 
their  communities  restored. 

Through  this  organization  the  sales  of  the  last  three  issues  in  the 
year  1919,  one  in  anticipation  of  taxes,  dated  November  7,  1919, 
and  two  Victory  Loan  anticipation  certificates,  dated  December  5 
and  19,  respectively,  were  so  successful  as  to  meet  with  the  approval 
of  the  director  himself.  In  making  his  report  after  the  last  issue  in 
anticipation  of  the  Victory  Loan  had  been  floated,  Mr.  Traylor  said 
in  part: 

"The  bankers  of  the  Seventh  district  have  established  an  enviable 
record  of  service  in  connection  with  Government  financing,  which  I 
am  sure  they  will  not  fail  to  maintain  until  the  final  chapter  is  writ- 
ten. 

"I  want  also  to  personally  thank  each  and  every  banker  of  the 


HISTORY  OF  BANKING  IN  ILLINOIS  -       447 

district  for  their  continued  uniform  courtesy  to,  and  their  kindly  con- 
sideration of,  the  appeals  emanating  from  the  Certificate  Division,  of 
which  Mr.  Harris  has  had  entire  charge  during  the  present  series  of 
certificate  issues.  The  whole-hearted  desire  of  this  department  is 
to  render  the  fullest  measure  of  service  and  consideration  possible, 
complying  always  with  the  rulings  of  the  Treasury  Department. 
No  effort  of  this  department  will  be  fully  effective,  however,  with- 
out the  cordial  cooperation  of  the  bankers  of  the  district.  That  you 
have  given  such  cooperation  and  support  is  evidenced  by  the  con- 
sistent report  to  Washington  of  subscriptions  to  each  issue  cover- 
ing our  assigned  quota.     No  greater  service  can  be  rendered." 

With  the  single  exception  of  the  district  served  by  the  Federal 
Reserve  Bank  of  New  York,  the  territory  under  Mr.  Traylor's  di- 
rection led  the  country  in  total  amount  of  subscriptions  given  to  the 
certificates  of  indebtedness.  However,  it  is  safe  to  say  that  the  ac- 
tual task  of  securing  so  large  a  subscription  was  infinitely  greater 
than  that  which  confronted  the  New  York  district,  for  in  the  Sev- 
enth district  subscriptions  in  small  amounts  had  to  be  obtained  from 
more  than  one-sixth  of  all  the  individual  banks  in  all  twelve  dis- 
tricts. To  a  large  extent  it  was  necessary  to  solicit  subscriptions 
from  small,  scattered  banks  by  mail,  and  to  this  end  Mr.  Traylor 
sent  personal  letters  into  each  county  prior  to  every  offering  of 
certificates.  Also  he  made  arrangements  whereby  every  bank  in 
the  district  was  reached,  either  by  mail,  telephone,  or  personal  rep- 
resentative. Without  this  almost  tireless  effort,  it  is  doubtful  if  the 
district  tributary  to  the  Federal  Reserve  Bank  of  Chicago  could  have 
shown  the  excellent  record  Mr.  Traylor  was  able  to  report. 

In  each  of  the  twelve  districts,  in  order  to  suit  the  issues  of  cer- 
tificates of  indebtedness  to  the  convenience  of  the  banks,  several 
options  were  given  for  making  payment,  both  on  the  subscriptions 
of  the  banks  themselves  and  of  their  customers.  The  most  popu- 
lar seems  to  have  been  the  method  of  giving  the  government  credit 
on  the  books  of  the  banks.  This  plan,  however,  was  permitted  only 
to  those  banks — both  members  and  non-members  of  the  Federal  Re- 
serve System — which  had  qualified  as  special  depositaries.  In  such 
cases  the  certificates  of  indebtedness  so  purchased  were  sometimes 
left  with  the  Federal  Reserve  banks  as  collateral  against  the  book- 
credit  created  by  their  purchase. 

Those  banks  that  had  not  qualified  as  depositaries  usually  paid 
by  cash  or  made  their  remittances  by  check  or  draft  to  the  Federal 


448  FINANCING  AN  EMPIRE 

Reserve  bank  of  their  district.  Others  made  settlement  through  a 
correspondent  bank  located  in  a  Federal  Reserve  city,  in  which  case 
the  correspondent  made  the  payment,  charging  it  to  the  account  of 
the  bank  for  which  it  was  acting.  Also  a  bank  might  notify  the 
Federal  Reserve  bank  of  which  it  was  a  member  to  charge  its  reserve 
account  with  the  amount  of  certificates  allotted  to  it. 

As  a  rule  subscriptions  to  these  short-term  loans  were  received 
from  the  banks  in  advance  of  the  day  specified  in  the  Treasury  an- 
nouncement. Just  as  soon  as  a  Federal  Reserve  bank  had  assem- 
bled its  subscriptions  from  its  district,  it  would  wire  the  Secretary 
of  the  Treasury  of  the  amount  desired  and,  after  totaling  these 
amounts  in  all  other  parts  of  the  country  and  comparing  them  with 
the  funds  needed,  he  would  make  proportionate  allotments  and  wire 
each  Federal  Reserve  bank  of  his  decision.  These  banks,  in  turn, 
would  then  re-allot  their  portion  to  the  subscribers  in  their  respective 
districts.  Since  this  work  had  to  be  done  with  great  speed,  as  new 
issues  came  at  bi-weekly  intervals  for  much  of  the  time,  it  Avas  im- 
possible for  exact  proportionate  allotments  to  be  made  individual 
banks.  Aside  from  this  lack  of  mathematical  apportioning  of 
amounts,  every  effort  was  made  to  distribute  each  issue  in  a  way  fair 
to  all. 

Usually  the  banks  and  their  customers  would  hold  their  certifi- 
cates until  close  to  the  date  of  maturity,  when  they  were  returned 
to  the  Federal  Reserve  bank  of  their  district,  which  would  credit  the 
par  amount  to  the  bank's  account  on  the  maturity  date.  The  certifi- 
cates were  then  cancelled  and  mailed  to  the  Treasury  Department 
at  Washington.  If  a  bank  owning  certificates  did  not  keep  an  ac- 
count at  the  Federal  Reserve  bank,  settlement  was  usually  made 
by  sending  a  check  for  the  amount  due.  Since  all  certificates  were 
issued  in  anticipation  of  the  receipt  of  certain  funds — such  as  Lib- 
erty bond  sales  or  the  collection  of  taxes — the  Secretary  of  the  Treas- 
ury was  usually  in  a  position  to  pay  them  off  on  the  maturity  date. 
However,  when  funds  in  the  Treasury  were  so  low  as  to  make  this 
impossible,  additional  securities  would  be  marketed  to  refund  those 
falling  due. 

Each  district  devised  special  methods  known  to  salesmanship, 
whereby  its  full  allotment  might  properly  be  distributed  among  all 
the  banks.  The  Federal  Reserve  Bank  of  Chicago  urged  each  bank- 
ing institution  in  its  territory  to  set  aside  a  definite  percentage  of 


HISTORY  OF  BANKING  IN  ILLINOIS  „       449 

its  resources  for  the  purchase  of  certificates.  This  ratio  varied  with 
the  size  of  the  issue  and  was  announced  each  time.  Generally,  banks 
were  asked  to  contribute  two  and  one-half  per  cent  of  their  total 
resources  to  any  issue  of  certificates  amounting  to  as  much  as  seven 
hundred  and  fifty  million  dollars;  for  a  six  hundred  million  dollar 
loan,  two  per  cent  was  asked;  and  only  one  and  three-quarters  per 
cent  for  a  loan  of  not  more  than  a  half  billion.  Since  it  took  several 
issues  of  certificates  to  anticipate  any  one  Liberty  Loan,  or  tax  issue, 
under  the  plan  for  stabilizing  the  money  market  used  by  the  Treas- 
ury Department,  such  banks  as  found  it  inconvenient  to  subscribe 
for  their  full  quota  on  any  one  certificate  issue,  would  attempt  to 
make  it  up  on  another  of  the  same  series,  so  that  their  average  sub- 
scriptions might  maintain  the  quota. 

At  the  close  of  the  series  in  anticipation  of  the  Fourth  Liberty 
Loan,  a  certificate  signed  by  Governor  McDougal  of  the  Federal 
Reserve  Bank  and  Director  of  Sales  Traylor,  was  given  each  bank 
which  had  made  a  record  of  one  hundred  per  cent  on  its  quota.  After 
the  Victory  Loan  series  a  somewhat  similar  certificate  took  the  form 
of  a  citation  for  distinguished  service.  These  last  were  so  highly 
prized  by  many  of  the  banks  that  they  were  framed  and  hung  on  the 
walls  to  remain  there  permanently. 

In  discontinuing  his  directorship  of  this  work  in  May,  1919,  Mr. 
Traylor  reported  that  there  had  been  ten  issues  of  certificates  of 
indebtedness  in  anticipation  of  the  Victory  Loan.  They  were  issued 
in  the  period  between  December  5,  1919,  and  May  1,  1920.  In  all, 
the  Seventh  Federal  Reserve  district  had  been  given  a  quota  of  seven 
hundred  and  ninety-one  million  dollars'  worth  of  these  issues  and  the 
total  subscription  in  that  district  amounted  to  $9.53,415,500,  or  one 
hundred  and  twenty  and  five-tenths  per  cent  of  the  assigned  quota. 

In  making  his  final  report  Mr.  Traylor  said: 

"By  your  service  to  the  nation  and  to  your  fellow  bankers  in  this 
campaign,  you  have  taken  an  essential  part  in  one  of  the  greatest 
achievements  in  our  financial  history,  and  we  are  proud  to  have  been 
associated  with  you  in  bringing  our  district  through  to  a  clean  finish. 

"In  completing  the  government's  program,  Mr.  E.  L.  Harris 
will  continue  in  charge  of  the  sale  of  certificates  in  this  district.  May 
he  in  that  work  have  the  whole-hearted  support  you  have  given  us 
when  the  battle  was  the  keenest." 

War  borrowing  did  not  by  any  means  end  with  the  war,  nor  yet 
with  the  Victory  Loan.     Government  borrowings  up  to  that  time 


450  FINANCING  AN  EMPIRE 

had  taken  care  of  the  immediate  needs  of  the  United  States  and  her 
Allies.  After  the  war  was  finished  there  remained  the  unpleasant 
task  of  paying  the  debts.  Since  the  use  of  certificates  had  proved 
successful  during  the  war  period,  the  Treasury  Department  decided 
not  to  dispense  with  this  same  plan  for  paying  off  war  debts.  There- 
fore, certificates  continued  to  be  issued  at  more  or  less  regular  in- 
tervals in  anticipation  of  quarterly  tax  payments  or  for  the  purpose 
of  refunding  or  paying  off  bond  issues. 

By  now  the  banks  had  come  to  consider  such  short-term  financing 
a  convenience  for  themselves.  It  prevented  the  necessity  of  hoard- 
ing large  sums  against  tax  payment  dates  or  other  occasions  when 
there  would  be  unusual  withdrawals.  Likewise,  corporations  and 
individuals  who  were  highly  taxed  found  it  to  their  advantage  to 
purchase  these  certificates.  By  doing  so  they  were  able  to  accumu- 
late tax  payment  funds  gradually  and  at  the  same  time  use  the  cer- 
tificates in  which  such  funds  were  invested  as  collateral  against  loans, 
should  a  need  arise.  The  growth  of  this  demand,  together  with  the 
fact  that  there  was  practically  no  interruption  between  the  last  is- 
sues of  certificates  in  anticipation  of  the  Victory  Loan  and  the  first 
of  the  tax  anticipation  issues,  for  a  time  at  least,  made  it  unneces- 
sary for  the  sales  organization  under  the  direction  of  Mr.  Harris  to 
put  forth  the  strenuous  and  radical  efforts  that  had  been  necessary 
earlier  in  the  war  period.  The  first  of  the  tax  anticipation  certifi- 
cates to  follow  the  Victory  Loan  were  issued  on  May  21,  1919,  and 
thereafter  others  appeared  at  regular  bi-weekly  intervals,  or,  occa- 
sionally, two  or  more  series  would  appear  at  one  time  at  longer  in- 
tervals. Banks  were  still  requested  to  keep  to  a  quota  allotment  on 
these  certificates,  and  they  found  no  great  difficulty  in  doing  so 
throughout  the  period  of  business  prosperity  which  followed  the  dec- 
laration of  peace. 

In  August,  1919,  the  policy  which  had  hitherto  been  maintained 
of  selling  these  certificates  only  at  par  was  discontinued,  and  instead 
they  were  allowed  to  assume  market  quotations  with  a  "spread"  be- 
tween the  buying  and  selling  figure.  This  difference  usually  aver- 
aged between  one-sixteenth  and  one-quarter  of  a  point — depending 
upon  the  length  of  time  a  certificate  had  to  run — and  the  fact  that 
this  marketability  existed,  together  with  the  fairly  attractive  inter- 
est rate  the  certificates  carried,  made  them  an  interesting  invest- 
ment for  both  banks  and  individuals  during  the  period  of  prosperity. 
To   meet   further   the   needs   of   these   investors,  the   maturity   Mas 


HISTORY  OF  BANKING  IN  ILLINOIS  -      451 

lengthened  on  some  of  the  issues  to  as  much  as  two  or  even  three 
years,  and  large  numbers  of  the  certificates  were  sold  through  regu- 
larly established  investment  houses  with  a  clientele  to  whom  such 
paper  appealed. 

During  the  war  period  most  of  the  certificates  had  been  absorbed 
by  banks  and  individuals,  and  colorations  were  not  so  attracted  to 
them.  This  was  especially  true  of  the  loan  anticipation  certificates 
as  they  were  redeemable  by  Liberty  bonds,  the  purchase  of  which 
was  not  compulsory.  Therefore,  of  the  $13,437,000,000  of  both  tax 
and  loan  anticipation  certificates  sold  between  our  entry  into  the  war 
and  the  Armistice,  some  eighty  per  cent  was  purchased  by  banks. 
Between  the  signing  of  the  Armistice  and  the  summer  of  1923,  sales 
totaled  $21,375,000,000,  a  very  large  proportion  of  which  was  dis- 
tributed among  investors  other  than  banks. 

As  is  to  be  expected,  the  demand  for  certificates  of  indebtedness 
fell  off  markedly  as  the  period  of  depression  set  in,  but  by  that  time 
the  immediate  needs  of  the  Treasury  had  been  satisfied  to  such  an 
extent  that  it  was  possible  to  adjust  the  amount  of  certificates  of 
indebtedness  to  the  demand  for  that  type  of  paper. 

The  sales  were  continued  throughout  1919  in  the  manner  estab- 
lished by  Mr.  Traylor,  but  in  December  of  that  year,  E.  L.  Harris, 
who  had  succeeded  Mr.  Traylor  as  Director  of  Sales  of  United 
States  Certificates  of  Indebtedness,  was  elected  an  officer  of  the  Fed- 
eral Reserve  Bank  of  Chicago  with  the  title  "Manager  of  Bank  Re- 
lations and  Membership."  As  a  consequence  of  this,  sales  of  cer- 
tificates of  indebtedness  were  merged  into  Mr.  Harris'  new  office  and 
such  issues  as  the  Treasury  Department  chose  to  make  thereafter 
were  handled  through  this  department  of  the  Federal  Reserve  bank. 

Thus,  a  method  of  financing  which,  up  to  the  time  of  the  World 
War,  had  been  resorted  to  on  only  six  occasions  in  the  history  of 
the  United  States,  had  developed  from  a  strictly  emergency  meas- 
ure to  a  permanent  means  of  meeting  the  convenience  of  investors 
and  of  stabilizing  the  money  markets  of  the  country.  According  to 
reports  of  the  sales  of  these  certificates,  the  district  served  by  the 
Federal  Reserve  Bank  of  Chicago  stood  consistently  second  to  New 
York  in  the  amount  of  such  paper  absorbed  and  usually  distributed 
close  to  eleven  per  cent  of  the  whole  amount  absorbed  by  the  country. 

Vol.    1—45 


CHAPTER  XXV 

BANKS    IN    ILLINOIS    DURING    AND    AFTER    THE 

WAR  PERIOD 

Ruling  on  bank  capital  in  Chicago — Unprecedented  levels  reached  in  bank  clearings — 
Private  banks  abolished — Problems  following  declaration  of  peace — Boom  of  1919 
and  depression  of  1921 — Spurgin,  Fort  Dearborn  and  Milwaukee-Irving  bank  fail- 
ures— Important  bank  consolidations  in  Chicago. 

The  banks  of  the  state  of  Illinois  were  too  deeply  engrossed  in 
the  affairs  of  the  world  to  accomplish  much  in  the  way  of  purely 
local  interest  during  the  war,  and  it  is  probable  that  the  most  note- 
worthy event  of  that  character  which  occurred  was  the  controversy 

•  » 

on  bank  capitalization  held  in  Chicago  in  February,  1916,  which  re- 
sulted in  the  rendering  of  a  decision  by  the  supreme  court  of  the 
state  decreeing  that  state  banks  in  outlying  communities  might  not 
move  into  Chicago  and  continue  to  operate  under  their  original  cap- 
ital. This  decision  came  as  the  result  of  the  annexation  of  Morgan 
Park  to  the  city  of  Chicago.  At  the  time  the  circuit  court  of  Cook 
County  enjoined  the  Adams  State  Bank  and  the  Metropolitan  State 
Bank  of  that  community  from  removing  into  Chicago  proper,  as 
they  were  not  organized  with  the  capital  required  by  banks  in  the 
city.  This  decision  was  sustained  by  the  supreme  court  and  conse- 
quently affected  a  number  of  other  small  banking  institutions  in 
outlying  districts  which,  some  years  previously,  had  succeeded  in  get- 
ting charters  under  a  capitalization  suited  to  the  size  of  their  dis- 
tricts rather  than  that  required  by  the  city  of  Chicago. 

The  fact  that  the  United  States  entered  the  World  war  on  April 
(>.  1917,  did  not  in  any  way  curb  the  tendency  toward  ever  greater 
expansion  which  had  played  so  prominent  a  part  in  the  affairs  of  the 
previous  two  years.  In  the  west.  1917  was  the  biggest  year  on  rec- 
ord. Agriculture  and  the  live  stock  industries  were  the  foundation 
stones  on  which  prosperity  rested  and,  because  of  the  high  prices 
received,  farmers  were  given  a  feeling  of  independence  that  they 
had  never  known  before.  Then  to  this  great  agricultural  prosperity 
was  added  a  similar  showering  of  wealth  upon  the  wage  earners. 

452 


HISTORY  OF  BANKING  IN  ILLINOIS  453 

The  ranks  of  the  latter  were  so  depleted  by  men  taken  into  the  army 
and  the  demands  of  industry  continued  to  increase  to  so  great  an 
extent  that  wage  earners,  probably  more  than  any  other  group,  with 
the  single  exception  of  the  farmers,  found  themselves  in  a  position 
to  name  their  own  price. 

Foreign  trade  became  larger  than  ever,  but  it  is  possible  that  by 
this  time  the  increase  was  due  more  to  rise  in  prices  than  to  growth 
in  actual  volume.  Lack  of  transportation  facilities  presented  a  diffi- 
culty which  continued  to  grow  worse  and  by  the  time  of  our  entry 
into  the  war,  not  only  was  the  country  hampered  by  a  lack  of  ability 
to  obtain  shipment  of  goods,  but  also  great  difficulty  was  found  in 
securing  adequate  supplies  of  fuel  at  the  plants  where  needed. 

This  constantly  increasing  rise  in  prices  and  wages,  together  with 
the  fact  that  there  still  seemed  no  let  up  to  the  inflow  of  available 
funds,  caused  Chicago's  bank  clearings  to  mount  another  four  and 
a  half  billion  over  the  high  record  of  1916.  Clearings  for  1917 
amounted  to  almost  twenty-five  billion  dollars  in  all  and  bank  de- 
posits continued  to  grow  in  amount. 

In  spite  of  the  extent  to  which  attention  was  being  drawn  to  af- 
fairs of  world-wide  import,  the  people  of  Illinois  succeeded,  on  June 
22,  1917,  in  approving  the  Buck-Austin  Bill  which  provided  that 
after  January  1,  1921,  there  might  be  no  further  private  banking 
business  conducted  within  the  state.  For  many  years  there  had  been 
put  forth  effort  after  effort  to  combat  this  kind  of  banking,  which 
in  some  sections  was  a  privilege  greatly  abused  and  which,  therefore, 
brought  a  great  deal  of  disaster  to  the  citizens  of  the  state  as  well 
as  to  honest  banking  interests.  However,  there  were  sections,  par- 
ticularly in  southern  Illinois,  where  settlements  were  not  large 
enough  to  support  a  bank  with  a  capital  as  large  as  was  required  of 
an  incorporated  institution.  On  the  whole  these  smaller  private 
banks  were  sufficiently  well  managed  to  answer  the  needs  of  their 
communities  and  were  declared  far  better  than  no  banking  facilities 
whatsoever.  Therefore,  up  to  1917,  whenever  a  law  intended  to  do 
away  with  private  banking  was  introduced,  it  was  so  vigorously 
fought  by  the  south  as  always  to  meet  with  defeat,  and  in  spite  of  the 
small  size  of  the  supporting  communities  and  the  righteous  indigna- 
tion of  Chicago  and  other  cities  which  had  suffered  greatly  at  the 
hands  of  unscrupulous  private  bankers,  it  had  previously  been  con- 
sistently impossible  to  pass  any  legislation  against  unincorporated 
banking  institutions. 


454  FINANCING  AN  EMPIRE    . 

When  the  Armistice  was  signed  on  November  11,  1018,  business 
was  compelled  to  turn  its  thoughts  from  problems  of  war  to  those 
of  peace  with  great  rapidity.  The  country  as  a  whole  expected  a 
sharp  drop  in  commodity  prices  and  a  period  of  rapid  readjustment 
and  liquidation  tending  to  work  toward  pre-war  levels.  Business 
men  and  bankers  were,  on  the  whole,  braced  for  such  a  situation  and 
had  it  come  as  expected,  the  country  would  in  all  probability  have 
borne  the  shock  easily.  Affairs,  however,  were  not  as  bad  as  had 
been  anticipated.  The  whole  continent  of  Europe  was  left  in  tur- 
moil and  did  not  go  back  to  work  as  expected,  nor  did  its  tens  of  mil- 
lions of  soldiers  return  to  the  ranks  of  industry  so  that  public  treas- 
uries might  discontinue  their  policies  of  extravagant  expenditure  and 
restore  their  condition  through  adequate  taxation.  Consequently 
for  America,  the  problems  of  peace  soon  proved  to  be  more  difficult 
and  dangerous  than  those  of  war  for,  in  addition  to  the  burdens  nat- 
urally belonging  to  her  at  such  a  time,  she  was  further  handicapped 
by  those  shifted  from  abroad.  The  nation  was  equipped  with  vast 
industrial  capacity  for  which  there  was  no  longer  any  need  and  such 
industries  as  catered  to  the  more  normal  peace  time  requirements  were 
not  operating  to  a  sufficient  extent  to  create  a  normal  condition  even 
for  home  consumption,  to  say  nothing  of  continued  difficulties  be- 
cause of  the  abnormal  situation  abroad. 

For  a  time  depression  reigned,  but  liquidation  had  not  been  com- 
pleted before  a  rapid  upward  movement  both  in  prices  and  volume 
of  business  settled  on  the  country.  By  May,  1919,  demands  for  bank 
loans  began  which  expanded  about  twenty-five  per  cent  during  the 
next  twelve  months.  Prices  rose  to  levels  beyond  those  reached  dur- 
ing the  hectic  years  of  the  war  and  the  feverish  state  of  the  financial 
and  industrial  boom  then  existing  exceeded  any  since  1837.  Xow 
that  the  war  was  actually  over,  the  people  of  the  country  relaxed  the 
economy  they  had  practiced  during  America's  participation  in  the 
conflict,  and  indulged  in  an  orgy  of  private  consumption  and  self 
assertion  which  brought  numerous  strikes  and  other  troubles  in  its 
wake,  greatly  reducing  the  quantity  of  general  production.  Thus, 
there  was  created  an  even  greater  scarcity  of  goods  in  1919  than  that 
which  had  handicapped  the  country  during  the  last  year  of  the  war. 

The  inevitable  period  of  unwarranted  expansion  growing  out  of 
such  a  situation  set  in,  and  by  May  of  1920  bank  loans  the  country 
over  had  increased  by  twenty-five  per  cent.  This  was  largely  due  to 
the  fact  that  American  business  had  tied  up  a  large  amount  of  capital 


HISTORY  OF  BANKING  IN  ILLINOIS  455 

in  open  account  advances  to  Europe  and  was  thereby  driven  to  re- 
plenish its  working  capital  with  borrowed  funds.  However,  the  fact 
that  bank  loans  were  increasing  was  not  so  significant  as  that  there 
was  a  great  deterioration  in  their  average  quality;  it  was  not  possible 
for  truly  liquid  loans  to  pile  up  so  rapidly.  In  the  country  tributary 
to  Chicago  prosperity  was  especially  in  evidence  and  abnormal  profits 
were  made  throughout  most  of  the  year  1920.  Toward  the  end,  how- 
ever, the  wave  broke  and  with  it  crumbled  the  large  volume  of  busi- 
ness, high  prices,  and  unwarranted  profits.  Losses  to  banks  did  not 
come  quite  so  soon  as  those  to  industry  in  general,  and  it  was  not 
necessary  in  most  instances  to  charge  them  off  before  the  close  of  the 
year.  Generally  the  banks  found  that  their  funds  were  tied  up  for 
indefinite  periods  rather  than  actually  lost,  and  a  great  many  of  the 
larger  customers  had  to  be  carried,  much  to  the  embarrassment  of  the 
banks  themselves. 

During  1921,  in  addition  to  bearing  its  share  of  the  difficulties  re- 
sulting from  the  troubles  that  had  descended  upon  industry,  the  bank- 
ing situation  of  the  middle  west  was  further  affected  by  the  condition 
of  farmers  and  live  stock  growers  who  were,  if  anything,  more  seri- 
ously shocked  by  the  liquidation  than  any  other  group  of  producers. 
Farmers  had  been  so  overwhelmed  by  their  unaccustomed  prosperity 
that  they  had  expanded  far  beyond  the  point  of  wisdom  in  an  attempt 
to  capitalize  on  their  war  earning  basis.  Thousands  of  acres  had 
changed  hands  at  ever-increasing  prices  until  those  left  with  encum- 
bered land  in  their  possession  at  the  time  of  the  crash  faced  a  situa- 
tion where  in  some  cases  the  products  of  their  farms  would  not  even 
pay  the  interest  on  their  debts,  and  it  was  beyond  hope  to  expect  that 
the  principal  might  be  liquidated  within  a  reasonable  length  of  time. 
There  was  more  of  this  west  of  the  Mississippi  than  in  Illinois  but 
it  affected  Illinois'  banking.  Furthermore,  farmers  found  that  the 
cost  of  practically  every  necessity  which  they  were  forced  to  buy  was 
far  beyond  the  proportionate  income  received  from  the  sale  of  farm 
products.  This  condition  came  about  partly  as  a  result  of  an  ab- 
normal international  exchange  situation  and  partly  because  of  the 
fact  that  competition  from  abroad,  which  had  been  cut  off  during 
the  war  and  for  a  long  period  after  its  conclusion,  was  now  becoming 
a  factor  which  greatly  reduced  the  size  of  markets  for  American 
farm  products. 

Industry  in  1921  found  its  affairs  receding  with  a  rapidity  which 
was  no  less  abrupt  than  its  advance  shortly  after  the  outbreak  of  the 


456  FINANCING  AN  EMPIRE 

war.  Companies  such  as  the  Bethlehem  Steel  Corporation,  the  United 
States  Steel  Corporation,  The  American  Woolen  Company,  and  the 
Singer  Company  made  single  slashes  in  wages  early  in  the  year  which 
amounted  to  twenty  per  cent  or  more.  Organizations  so  prosperous 
as  to  create  great  speculation  in  their  securities  on  the  stock  market, 
now  reported  greatly  reduced  earnings  and  in  many  instances  passed 
their  dividends,  iron  and  steel  operations  fell  to  a  point  estimated  as 
less  than  thirty  per  cent  of  their  capacity  and  reduced  the  prices  of 
their  products  from  four  to  ten  dollars  a  ton.  Failures  were  reported 
from  many  quarters,  unemployment  became  acute,  and  large  manu- 
facturing plants  built  up  during  the  war  period  now  stood  idle- 
many  with  little  prospect  of  ever  again  using  their  expensive  equip- 
ment. 

In  the  feverish  commercial  activity  during  both  the  war  years  and 
the  boom  which  came  shortly  after  the  signing  of  the  Armistice,  even 
the  banks  of  the  country  were  not  immune  and  where  their  officers 
were  men  of  sufficient  strength  to  withstand  the  temptation  of  fab- 
ulous gains  offered  by  risky  investments,  both  on  their  own  behalf 
and  that  of  their  banks,  they  were  frequently  unable  to  eliminate 
completely  a  more  or  less  indirect  participation  in  unsound  enter- 
prises. At  the  same  time  there  were  individuals  in  charge  of  bank- 
ing affairs  who,  unknown  to  their  directors,  used  first  their  own  funds 
and  then  "borrowed"  from  their  banks,  so  that  they  might  enhance 
their  private  fortunes  through  channels  not  always  consistent  with 
and  worthy  of  the  presumably  sound  judgment  of  a  banker.  The 
crash  of  1921  brought  such  undertakings  to  light,  often  with  great 
loss  to  those  who  had  entrusted  their  funds  to  the  banks  involved. 
Two  outstanding  instances  occurred  in  Chicago. 

On  July  1-1,  1921,  the  Michigan  Avenue  State  Bank,  located  on 
Michigan  Avenue  near  Twenty-second  Street  not  far  from  the  main 
down-town  banking  center,  was  closed  by  the  state  auditor  who  dis- 
covered that  practically  the  entire  capital  and  surplus  of  the  institu- 
tion had  been  dissipated  by  the  bank's  president,  Warren  G.  Spur- 
gin.  Just  before  this  occurrence  one  of  the  directors,  suspecting  that 
all  was  not  as  it  should  be,  asked  that  the  bank  be  examined  by  a  firm 
of  auditors  of  his  choosing.  President  Spurgin  refused  to  permit 
this  examination  to  be  made  unless  he  himself  might  choose  the  exam- 
iners. Then  the  State  Banking  Department  sent  in  its  men  with  the 
result  that  a  receiver  was  appointed. 

When  the  affairs  of  the  bank  were  thoroughly  examined  it  was 


HISTORY  OF  BANKING  IN  ILLINOIS  •  457 

found  that  for  a  period  of  two  years  Spurgin  had  been  permitting,  or 
rather  engineering,  loans  to  some  of  the  smallest  depositors  of  the 
bank,  to  small  town  ministers  who  lived  on  salaries  of  but  a  few  hun- 
dred dollars  a  year,  to  children,  people  long  since  dead,  clerks,  and 
others  who  were  in  no  way  able  to  repay  the  many  thousands  of  dol- 
lars that  each  had  presumably  borrowed.  In  all  about  one  and  one- 
half  million  dollars  were  taken  in  this  way  on  notes  which  were  fraud- 
ulent and  in  many  instances  forgeries. 

Investigations  likewise  disclosed  the  fact  that  large  amounts  in 
deposits  had  been  accepted  after  the  bank  had  been  known  to  be  in- 
solvent and  this  resulted  in  long-drawn-out  court  procedures  on  the 
part  of  last  day  depositors,  who  were  eventually  given  the  full  amount 
of  deposits  aggregating  about  one  hundred  and  seventy  thousand 
dollars.  I 

In  addition  to  becoming  deeply  involved  with  the  State  Banking 
Department  for  his  violations  of  banking  laws,  Spurgin  set  the  United 
States  prohibition  agents  on  his  trail  when  the  receiver,  on  opening 
the  bank's  vault,  found  some  ten  thousand  dollars'  worth  of  liquor 
which  subsequent  testimony  revealed  had  been  held  for  sale,  and  that 
a  large  proportion  of  the  bank's  vault  customers  had  come  to  secure 
portions  of  its  stocks  of  liquor  rather  than  its  safety  service  for  their 
valuables. 

As  soon  as  Spurgin  discovered  the  net  closing  in  around  him,  he 
packed  a  suit-case  with  approximately  fifty  thousand  dollars — all 
that  remained  of  the  million  and  a  half  dollars  that  he  had  taken  from 
the  bank — and  fled  the  country.  He  was  last  seen  in  Chicago  on 
Sunday,  July  17,  1921,  when  he  made  elaborate  preparations  for  the 
comfort  of  his  wife  and  daughter  and  the  protection  of  his  household 
effects  during  his  absence.  Then  he  vanished,  nobody  knew  whither. 
At  various  times  detectives  thought  they  had  traced  him  to  Colorado, 
Canada,  and  Mexico,  but  always  they  lost  the  trail.  Mexico  was  con- 
sidered his  most  probable  hiding  place  as  diplomatic  relations  had 
been  severed  at  that  time  and  the  Mexican  government  would  not, 
therefore,  return  our  fugitives  from  justice.  For  months  the  trail  was 
followed  and  enterprising  newspaper  reporters  wrote  serial  articles 
describing  the  horrors  surrounding  Spurgin  in  his  hiding  place.  He 
was  sometimes  described  as  following  a  trail  of  "dead  men's  bones" 
to  escape  detection,  and  again  he  was  pictured  as  managing  a  mine 
bought  with  the  suitcase  of  gold  carried  from  Chicago.  With  these 
last  stories  were  sometimes  included  harrowing  tales  of  how  those 


458  FINANCING  AX  EMPIRE 

in  his  employ  had  made  him  a  prisoner,  holding  him  against  the  day 
when  diplomatic  relations  might  be  restored  and  they  might  return 
the  banker  to  America  and  receive  the  rich  rewards  which  it  was  sup- 
jjosed  would  be  forthcoming  upon  his  release.  Once  Spurgin  was 
reported  to  have  killed  himself  in  a  Florida  hotel,  but  when  the  sui- 
cide was  later  identified  he  was  found  not  to  be  the  missing  banker. 

The  futile  hunt  was  still  in  progress  in  December,  1921,  when 
the  grand  jury  held  its  meeting  in  Chicago,  at  which  time  it  was 
expected  that  the  Spurgin  case  would  be  tried.  The  jurors  were  so 
incensed  over  the  fact  that  the  prisoner  had  not  yet  been  captured 
that  they  threatened  to  lock  up  every  officer  in  the  city  until  they 
had  found  the  man  or  group  responsible  for  "hiding"  Spurgin.  But 
even  this  wrath  on  their  part  did  not  succeed  in  producing  the  desired 
results  and  the  years  passed  without  Spurgin's  capture.  In  time 
the  hunt  was  given  up  because  those  seeking  the  man's  arrest  realized 
that  they  were  spending  more  in  the  pursuit  than  they  could  ever 
gain  from  the  capture.  It  came  to  be  the  general  opinion  that  Spur- 
gin Mas  settled  in  Mexico  and  newspaper  reports  were  received  to 
that  effect  from  time  to  time.  Occasionally  a  traveler,  hoping  to 
reap  a  rich  reward,  would  approach  the  newspapers  individually  of- 
fering them  the  "true"  story  of  what  had  become  of  Spurgin,  and 
now  and  then  a  reporter  claimed  to  have  talked  with  him  in  his  hiding 
place.  Late  in  1923  reports  were  still  coming  and  some  of  these 
indicated  that  the  banker  had  then  lost  his  money  and  his  health  and 
was  on  the  very  verge  of  surrender.  No  surrender  came,  however, 
and  the  case  fell  out  of  the  limelight  of  public  interest. 

The  affairs  of  the  bank  were  closed  and  a  new  institution  took 
over  the  building  and  whatever  else  it  found  of  value.  At  the  time 
of  the  meeting  of  the  grand  jury  in  December,  1921,  total  assets 
were  found  to  be  but  slightly  over  one  million  dollars,  while  liabili- 
ties were  more  than  three  million.  Double  assessment  of  the  stock- 
holders was  made,  but  as  Spurgin  had  himself  owned  most  of  the 
bank's  stock,  this  method  could  not  realize  nearly  enough  to  cover 
the  losses.  From  time  to  time  small  dividends  were  paid  depositors, 
but  in  all  not  more  than  one-third  of  what  they  had  entrusted  to  the 
bank  was  ever  paid  to  any  except  those  who  had  made  last  day  de- 
posits. 

Another  failure  was  the  result  of  unwise  management  rather  than 
an  out-and-out  theft,  and  involved  two  prominent  down-town  in- 
stitutions, the  Fort  Dearborn  National  Hank  and  the  Fort  Dearborn 


HISTORY  OF  BANKING  IN  ILLINOIS  459 

Trust  and  Savings  Bank.  These  banks  were  closed  on  December  31, 
1921,  when  the  clearing  house  examiners  disclosed  a  condition  which, 
but  for  the  prompt  cooperation  of  the  Chicago  Clearing  House 
Association,  doubtless  would  have  developed  into  the  most  serious 
financial  situation  that  had  yet  threatened  the  city  of  Chicago  and 
its  surrounding  territory. 

The  difficulty  here  was  one  of  long  standing  which  had  merely 
been  aggravated  by  the  period  of  speculation.  For  many  years  some 
forty  per  cent  of  the  stock  of  the  Fort  Dearborn  National  Bank  had 
been  held  by  Edward  Tilden,  a  brother  of  the  bank's  president.  Til- 
den  had  a  very  large  part  of  his  stock  holdings  issued  to  him  in 
certificates  of  small  denominations,  such  as  ten,  fifteen,  twenty,  or 
thirty  shares,  in  which  form  it  could  be  used  most  conveniently  as 
collateral  against  loans.  As  he  was  interested  in  a  number  of  projects 
outside  of  the  bank,  Tilden  made  a  regular  business  of  borrowing 
on  his  bank  stock  and  soon  developed  an  account  with  a  large  com- 
mercial paper  broker  (also,  owned  by  Tilden)  who  sold  his  notes  in 
all  parts  of  the  country  and  thus  kept  Tilden  constantly  supplied  with 
such  funds  as  he  required.  While  the  enterprises  into  which  these 
borrowings  went  were  many  and  varied,  Edward  Tilden  was  ex- 
tremely careful  to  avoid  any  investments  in  the  automobile  business, 
a  branch  of  industry  in  which  he  had  little  faith. 

Upon  the  death  of  Edward  Tilden,  his  estate,  then  valued  at  eight 
million  dollars,  with  current  liabilities  of  five  million  and  three  mil- 
lion tied  up  in  the  American  Trust  Building  then  occupied  by  the 
Fort  Dearborn  banks,  came  under  the  management  of  his  son,  Av- 
erill  Tilden,  a  director  of  the  bank.  Averill  Tilden,  operating  for 
the  Tilden  estate,  continued  to  carry  out  his.  father's  custom  of  con- 
stant borrowing  on  this  bank  stock,  but  he  did  not  have  his  father's 
aversion  to  motor  enterprises  and  soon  became  deeply  involved  in 
Briscoe  Motors  which,  in  October,  1921,  was  reorganized  into  the 
Earl  Motors,  Incorporated,  whose  securities  he  caused  to  be  under- 
written to  the  extent  of  two  and  one-half  million  dollars.  This 
underwriting  was  not  successful. 

At  about  this  time  the  national  bank  examiner^  following  a  brief 
examination  of  the  affairs  of  the  institution,  left,  giving  the  bank  a 
clean  bill  of  health  after  the  national  bank  had  charged  off  $1,248,- 
213.55.  The  clearing  house  examiner,  however,  who  had  been  watch- 
ing the  progress  of  Averill  Tilden's  investments  and  who  was  aware 
that  the  underwriting  of  the  Earl  Motors  was  far  from  successful, 


460  FINANCING  AX  EMPIRE 

feared  that  some  of  Tilden's  misfortunes  might  be  shared  by  the  bank 
through  impairment  of  his  responsibility  as  a  stockholder.  He,  there- 
fore, went  in  with  a  corps  of  assistants  and  spent  several  weeks  going 
over  the  affairs  of  both  Fort  Dearborn  banks.  As  a  result  of  his 
findings,  the  Chicago  Clearing  House  Association  urgently  recom- 
mended that  the  Fort  Dearborn  National  Bank  charge  off  to  loss  an 
additional  two  million  dollars  of  Karl  Motors,  Inc.,  direct  and  indirect 
paper,  in  order  to  put  its  affairs  on  a  liquid  basis,  at  the  same  time 
insisting  on  an  audited  statement  of  the  Tilden  estate.  This  sugges- 
tion was  not  carried  out,  but  the  statement  was  promised  for  January 
.),  1922. 

Unfortunately  for  Averill  Tilden,  news  of  this  large  charge-off 
as  losses  leaked  out  and  aroused  a  great  deal  of  doubt,  not  only  as  to 
the  solvency  of  the  bank  but  as  to  that  of  Tilden's  own  affairs.  The 
leak  occurred  at  a  time  when  Tilden's  notes  were  broadcast  over  the 
country  in  various  amounts  and  when  the  estate  was  embarrassed  by 
the  failure  of  the  Karl  Motors  underwriting.  In  this  extremity  Til- 
den had  one  hope  and  only  one :  this  lay  in  his  equity  in  the  American 
Trust  Building.  About  a  year  previously  he  had  made  a  contract 
with  the  First  National  Bank  of  Chicago  whereby  it  was  to  take  over 
the  building  as  soon  as  a  pending  merger  between  the  Corn  Kxchange 
National  Bank,  the  Merchants  Loan  and  Trust  Company,  and  the 
Illinois  Trust  Company  took  place.  It  was  planned  that  the  Fort 
Dearborn  banks  would  then  move  into  the  banking  rooms  of  the 
Corn  Kxchange  National  Bank  and  that  the  First  National  Bank 
might  have  the  American  Trust  Building.  Although  the  Corn  Kx- 
change National  Bank  had  not  yet  vacated  its  quarters,  and  the 
Fort  Dearborn  institutions  were,  therefore,  not  in  a  position  to  leave 
the  building  which  Tilden  had  previously  sold  to  Forgan  on  contract. 
Mr.  Tilden  believed  he  could  secure  an  advance  payment  on  his 
contract  that  would  save  him  from  the  great  financial  difficulties  which 
he  faced.  With  this  in  mind  lie  approached  James  B.  Forgan  of 
the  First  National  Bank  who  saw  the  psychology  of  the  situation  and 
paid  him  the  balance  due  on  the  contract,  and  Tilden  used  the  two 
million  dollars  to  try  and  protect  his  underwriting  of  the  Karl  Motors. 
About  this  time  the  directors,  realizing  that  Tilden's  operations  had 
greatly  endangered  the  bank,  likewise  approached  the  First  National 
Bank  to  ask  that  institution  to  make  an  offer  for  the  purchase  of  the 
assets  of  the  two  Fort  Dearborn  banks.  Mr.  Forgan  promptly 
refused  to  consider  this  suggestion.     Then  the  Continental  and  Com- 


HISTORY  OF  BANKING  IN  ILLINOIS  461 

mercial  interests  were  appealed  to  but  they  would  not  act  until  the 
matter  had  been  put  up  to  the  clearing  house  committee,  which  was 
done.  The  state  of  affairs  was  then  beginning  to  be  known  and  talked 
of  on  every  side,  and  Tilden's  notes,  secured  by  bank  stock  collateral, 
which  were  so  widely  broadcasted,  were  approaching  maturity  with 
a  probability  that  they  could  not  be  renewed  as  they  came  due.  There 
was,  therefore,  nothing  which  Tilden  could  do  except  admit  the  state 
of  affairs  and  permit  himself  to  be  given  over  to  a  Creditors'  Com- 
mittee. At  the  same  time  Tilden's  plight  meant  certain  destruction 
for  his  banks  and  had  it  not  been  for  prompt  action  on  the  part  of 
the  clearing  house,  Chicago  would  have  witnessed  one  of  the  severest 
local  financial  crashes  of  her  history.  Things  were  tided  over  and 
Mr.  Forgan  and  Mr.  Reynolds  bid  for  the  assets.  The  First  Na- 
tional interests  bid  two  per  cent  for  the  commercial  and  three  per 
cent  for  the  savings  deposits,  while  the  bid  from  the  Continental  and 
Commercial  banks  amounted  to  three  per  cent  for  commercial  de- 
posits and  five  per  cent  for  the  savings  deposits.  This  latter  was 
accepted,  the  merger  took  place,  and  the  depositors  were  assured  of 
full  payment.  The  Continental  and  Commercial  banks  paid  the 
equivalent  of  about  twenty  dollars  a  share  to  the  holders  of  national 
bank  stock  and  fifty  dollars  a  share  to  those  who  held  stock  in  the 
trust  and  savings  bank,  and  at  the  same  time  absorbed  the  cost  of 
liquidation.  As  the  various  loans  and  other  assets  were  liquidated, 
dividends  were  paid  the  stockholders  until  at  the  close  of  the  year 
192.5  a  total,  including  the  original  bonus,  had  been  paid  on  the  na- 
tional bank  stock  of  $2,900,000  or  about  $.58.00  a  share,  and  on  the 
stock  of  the  state  institution  there  was  paid  $720,000  or  $144.00  a 
share.  There  still  remained  a  capital  equity  sufficient  to  pay  the 
National  Bank  stockholders  a  total  of  approximately  $66.00  a  share 
and  to  the  Trust  and  Savings  Bank  shareholders  a  total  of  $1.54.00 
a  share.  Many  of  these  shareholders,  it  must  be  remembered,  had 
purchased  their  national  bank  stock  at  prices  in  the  neighborhood 
of  $200  a  share  and  the  state  bank  stock  at  about  $2.50  a  share. 

At  the  time  the  national  bank  was  absorbed  by  the  Continental 
and  Commercial  National  Bank  the  books  showed  assets  and  liabili- 
ties of  $71,116,81.5.81.  The  Continental  and  Commercial  National 
Bank  assumed  liabilities  amounting  to  $63,209,941.14  and  left  in 
the  Fort  Dearborn  National  Bank  an  equity  of  $7,906,874.67  in  loans 
and  securities  of  a  doubtful  character.  Under  the  terms  of  the  ab- 
sorption the  Continental  and  Commercial  Banks  paid  to  the  Fort 


462  FINANCING  AN  EMPIRE 

Dearborn  National  Bank  a  bonus  of  $1,020,137.62  for  its  business, 
and  to  the  Trust  &  Savings  Bank  a  bonus  of  $249,000.00. 

Had  the  Fort  Dearborn  National  Bank  been  permitted  to  fail, 
the  effect  would  have  been  spread  throughout  the  country,  because 
of  stock  ownership  as  well  as  for  such  indirect  results  as  are  certain 
to  follow  a  financial  disaster  of  such  proportions.  At  the  time  of 
Tilden's  failure  forty  per  cent  of  the  bank's  stock  was  held  by  him 
and  used  as  collateral  to  his  notes.  As  the  notes  defaulted,  the  stock 
was  transferred  to  the  note  holders.  Consequently,  had  the  bank 
failed,  those  who  had  bought  Tilden's  notes  and  lost  what  they  had 
thus  loaned,  and  had  become  stockholders  in  the  bank  through  that 
loss,  would  have  been  subject  to  a  legal  question  as  to  their  responsi- 
bility under  the  double  liability  as  stockholders.  This  situation  was 
avoided  by  the  prompt  action  of  the  clearing  house  banks,  which 
deposited  two  and  one-half  million  dollars  in  the  Fort  Dearborn 
banks  for  which  they  accepted  deferred  certificates  of  deposit  pay- 
able January  3,  1924,  and  bearing  interest  at  five  per  cent.  Through 
the  careful  management  of  the  Continental  and  Commercial  National 
Bank,  the  debt  was  paid  in  full  on  the  due  date,  in  spite  of  the  fact 
that  the  stipulation  had  been  made  that  no  part  of  it  need  be  paid 
until  all  liabilities  of  the  Fort  Dearborn  National  Bank  assumed  by 
the  Continental  and  Commercial  National,  together  with  interest  on 
them,  had  been  repaid  and  liquidated  in   full. 

This  merger  again  made  the  Continental  and  Commercial  Na- 
tional Bank  the  second  largest  national  bank  in  the  United  States; 
only  the  National  City  Bank  of  New  York  could  be  considered  any 
larger  and.  for  a  period  after  the  merger,  even  the  New  York  in- 
stitution was  exceeded  by  the  deposits  held  in  the  Chicago  bank. 
The  total  deposits  of  the  four  banks  then  constituting  the  Continental 
and  Commercial  system — two  national  and  two  trust  and  savings 
banks — aggregated  more  than  four  hundred  million  dollars  and  their 
resources  amounted  to  over  five  hundred  and  twenty-five  million 
dollars. 

During  the  following  year  or  two  a  number  of  smaller  banks  in 
and  about  Chicago  also  failed  as  a  result  of  the  dissipation  of  their 
funds  by  officers  and  there  grew  up — particularly  in  the  foreign  dis- 
tricts— so  great  a  distrust  of  banks  as  to  result  in  runs  on  some  of 
the  strongest  outlying  banks  in  the  city.  One  of  the  most  noteworthy 
of  these  was  the  failure  of  the  Milwaukee-Irving  State  Bank  in  April, 
1022,  when  it  was  discovered  that  its  president,  Everett  R.  Peacock. 


HISTORY  OF  RANKING  IN  ILLINOIS  463 

had  so  manipulated  the  hank's  funds  as  to  create  a  total  shortage 
of  $4-68, 000.     Peacock  accomplished  his  withdrawals  by  borrowing 

from  the  hank's  funds  on  worthless  collateral  and  he  was  further 
aided  in  his  sj^eculation  by  a  system  of  check  "kiting"  carried  on 
through  a  group  of  from  twelve  to  seventeen  hanks  from  which  he 
was  able  to  borrow  hundreds  of  thousands  of  dollars.  Peacock  had 
founded  the  hank  in  1911)  and  thereafter  formed  a  number  of  indus- 
trial companies,  many  of  which  seem  to  have  been  organized  for  no 
other  purpose  than  that  their  stocks  might  be  used  as  collateral  against 
bank  borrowings. 

Out  of  this  period  of  speculation  and  failures  there  grew  a  time 
of  consolidations.  Between  April,  1923,  and  the  end  of  1924  there 
occurred  a  dozen  consolidations  in  the  city  of  Chicago,  practically  all 
of  which  were  due  not  to  any  form  of  necessity  hut  rather  to  the  fact 
that  hankers  came  to  a  realization  of  the  greater  gains  that  two  or 
more  institutions  serving  any  one  community  might  realize  and  the 
hetter  service  they  might  give  if  operated  under  one  roof  and  with 
one  staff  of  officers  and  employees.  While  such  mergers  were  es- 
pecially evident  in  the  outlying  districts  where  numerous  small  banks 
had  sprung  into  being,  the  fundamental  reason  for  this  adjustment 
held  in  down-town  institutions  as  well,  and  country-wide  interest  was 
evidenced  in  the  consolidation  of  five  of  the  city's  most  highly  re- 
spected institutions  into  two  new  banks,  each  of  enormous  size. 

The  first  of  these  down-town  mergers  involved  three  of  Chicago's 
oldest  banks:  the  Merchants  Loan  and  Trust  Company,  established 
in  1837;  the  Corn  Exchange  National  Bank,  which  evolved  through 
a  period  dating  back  to  1870;  and  the  Illinois  Trust  and  Savings 
Bank,  which  began  business  in  1871.  This  merger  did  not  take  place 
all  at  one  time,  but  on  April  9,  1923,  when  the  east  half  of  the  six- 
teen million  dollar  building  erected  by  the  Illinois  Trust  and  Savings 
Bank  was  completed,  that  institution  and  the  Merchants  Loan  and 
Trust  Company  joined  forces  and  entered  the  new  building  as  the 
Illinois  Merchants'  Banks. 

The  merger  was  a  tribute  to  the  advantages  of  combined  opera- 
tion, for  up  to  that  time  each  of  these  banks  had  taken  great  pride 
in  the  fact  that  they  had  grown  to  be  two  of  the  most  prominent 
in  the  country  without  any  additions  resulting  from  mergers.  The 
Merchants  Loan  and  Trust  Company  was  the  oldest  institution  in 
Chicago's  financial  world  and  had  carried  its  name  and  identity  in- 
tact from  Civil  war  days,  while  the  Illinois  Trust  and  Savings  Bank 


4G4  FINANCING  AN  EMPIRE 

was  pleased  to  boast  that,  without  the  aid  of  mergers,  it  had,  in  the 
fifty  years  of  its  existence,  built  up  one  of  the  largest  and  most  promi- 
nent state  banks  in  the  whole  country,  with  savings  deposits  in  the 
aggregate  not  exceeded  outside  of  New  York  City. 

The  merger  was  not  fully  completed  at  that  time,  partly  because 
the  finished  section  of  the  new  building  was  not  large  enough  to  house 
the  three  banks,  and  partly  because  there  was  still  some  controversy 
over  the  part  that  the  Corn  Exchange  National  Bank  would  play 
in  the  new  combined  bank.  During  this  period  of  adjustment,  how- 
ever, all  three  banks  had  assembled  their  stock  in  such  a  manner  that 
they  were  owned  by  the  same  interests  and  controlled  by  approxi- 
mately the  same  personnel.  Each  had  a  capital  stock  of  five  million 
dollars  and  a  surplus  of  ten  million  and,  although  they  had  been  op- 
erated as  individual  institutions,  they  had  influential  stockholders  who 
were  interested  in  two  or  more  of  the  group. 

As  soon  as  the  banks  had  moved  into  the  east  half  of  their  build- 
ing, it  was  possible  to  start  the  destruction  of  the  banking  offices  of 
the  Illinois  Trust  and  Savings  Bank  which  stood  on  the  site  to  be 
occupied  by  the  west  half  of  the  Illinois  Merchants'  Building.  With- 
in a  year  and  a  half  after  this  first  merger,  therefore,  the  building 
had  been  sufficiently  completed  to  permit  the  absorption  of  the  Corn 
Exchange  National  Bank,  and  the  official  annexation  took  place  on 
September  29,  1924. 

Since  each  of  the  three  banks  was  extremely  proud  of  the  name 
built  for  itself  over  a  period  of  half  a  century,  it  could  not  be  ex- 
pected that  any  one  of  them  would  willingly  give  up  its  identity  in 
the  merger;  hence  the  group  was  known  as  the  Illinois  Merchants' 
Banks,  a  designation  which  took  care  of  the  first  two  to  enter  the 
combine  in  a  fairly  satisfactory  manner  but  left  no  provision  for 
preserving  the  identity  of  the  Corn  Exchange  National  Bank.  For  a 
time,  therefore,  it  was  thought  advisable  to  run  the  three  banks  as 
two  institutions  under  one  roof,  retaining  the  national  charter  of  the 
Corn  Exchange  National  Bank  and  giving  to  that  institution  offices 
occupying  the  entire  west  half  of  the  bank's  quarters  in  the  new 
building.  When  the  merger  finally  took  place,  however,  the  whole 
situation  had  been  considered  most  carefully  and  it  was  decided  that 
it  would  be  better  to  give  up  the  national  charter  and  combine  the 
three  institutions  into  one  bank.  Thus  the  new  institution,  under 
the  corporate  name  of  the  Illinois  Merchants  Trust  Company,  was 
formed  with  a  capital  of  $15,000,000,  surplus  of  $30,000,000,  and 


HISTORY  OF  BANKING  IN  ILLINOIS  465 

deposits  approximating  $38,5,000,000.  Thereby  the  Illinois  Mer- 
chants Trust  Company  became  one  of  the  largest  state  banking  in- 
stitutions in  the  United  States.  In  Chicago  its  only  rival  was  the 
Continental  and  Commercial  National  Bank  with  $25,000,000  in  capi- 
tal, $15,000,000  in  surplus,  and  deposits  of  $4-45,000,000. 

Prior  to  this  merger  Edmund  D.  Hulbert  had  been  president  of 
each  of  the  three  banks  and  it  was  planned  that  he  would  take  the 
helm  in  the  Illinois  Merchants'  banks.  On  March  30,  1923,  however, 
only  a  few  days  before  the  first  two  joining  forces  moved  into 
their  new  building,  Mr.  Hulbert  died  and  John  J.  Mitchell  of  the 
Illinois  Trust  and  Savings  Bank  was  chosen  to  fill  the  vacant  place 
temporarily,  until  a  younger  man  could  be  found  who  was  capable 
of  holding  the  position.  Mr.  Mitchell  was  then  past  seventy  years 
of  age  and  had  served  the  Chicago  public  through  his  connection  with 
the  Illinois  Trust  and  Savings  Bank  through  a  period  of  half  a  cen- 
tury. He  had  become  president  of  the  bank  when  he  was  but  twenty- 
six  years  old,  and  now  looked  forward  to  the  merger  which  would 
release  him  from  his  long  years  of  active  service  and  allow  him  to 
retire  to  the  less  strenuous  position  of  chairman  of  the  board  of 
directors.  Xo  man  so  capable  as  Mr.  Mitchell  could  be  found,  how- 
ever, and  he  was  recalled  from  California,  where  he  had  gone  to  begin 
his  long  vacation,  and  once  more  put  at  the  head  of  his  old  bank,  now 
become  Chicago's  largest — an  institution  able  to  meet  any  demand 
that  might  come  from  the  ever-growing  industrial  and  agricultural 
developments  of  the  middle  west,  which  were  showing  a  constantly 
increasing  tendency  to  require  greater  and  greater  financial  accom- 
modations. 

Within  a  few  weeks  after  the  completion  of  the  merger  forming 
the  Illinois  Merchants'  Banks,  the  National  Bank  of  the  Republic 
moved  into  the  quarters  formerly  occupied  by  the  Corn  Exchange 
National  Bank  and  took  with  it  the  National  City  Bank  of  Chicago, 
thereby  making  an  institution  with  a  capital  of  $4,000,000,  surplus 
of  $2,000,000,  and  deposits  amounting  to  about  $67,000,000. 

A  third  merger  of  real  import  at  this  time  was  that  of  two  banks 
in  the  stock  yards  district  which  had  been  held  under  practically  the 
same  ownership.  These,  the  Live  Stock  Exchange  National  and 
the  Stock  Yards  Savings  Bank,  on  February  6,  1924,  moved  into 
quarters  under  the  same  roof  and  changed  their  names  to  the  Stock 
Yards  National  Bank  and  the  Stock  Yards  Trust  and  Savings  Bank. 
Each  bank  kept  the  president  it  had  had  prior  to  the  merger  and  each 


46G  FINANCING  AN  EMPIRE 

president  became  vice-president  of  the  other's  bank.  Thus,  there 
were  combined  a  national  bank — which  had  started  back  in  1868  as 
the  Union  Stock  Yards  National  Bank,  in  1888  was  changed  to  the 
National  Live  Stock  Bank,  and  in  1900  to  the  Live  Stock  Exchange 
National  Bank — with  a  savings  bank  started  in  1902  in  response  to 
a  demand  for  the  services  it  might  offer  and  which  had  rapidly  grown 
to  a  place  where  it  served  some  thirty  thousand  people.  The  idea 
in  making  this  merger  was  to  combine  the  two  closely  related  institu- 
tions in  the  interests  of  economy  without  sacrificing  the  services  or 
the  identity  of  either;  through  it  there  was  brought  under  one  roof 
the  largest  single  banking  institution  in  Chicago  outside  of  the  loop 
district. 

At  the  same  time  similar  mergers  on  a  very  much  smaller  scale 
were  going  on  in  all  parts  of  the  city.  As  a  result  some  few  weak 
banks  were  absorbed  and  their  difficulties  thereby  eliminated,  but  on 
the  whole  these  mergers  were  made  almost  wholly  in  the  interests  of 
operating  economy.  It  was  found  that  many  communities  could  be 
served  just  as  Avell  by  one  bank  as  by  the  two  or  more  then  competing 
for  their  business,  and  therefore  a  number  of  banking  institutions 
which  had  come  into  existence  during  periods  of  expansion  were  now 
submerged  into  others  in  their  neighborhood  and  enabled  to  increase 
their  profits,  while  they  sacrificed  none  of  their  business  and  fre- 
quently greatly  augmented  their  facilities  for  service. 

Thus,  the  feverish  cycle,  produced  by  abnormal  economic  condi- 
tions fostered  by  the  war,  was  ended  and  while  the  banks  of  Chicago 
found  themselves  on  a  sounder  basic  structure  than  ever  before,  this 
was  not  the  case  in  all  sections  of  the  country,  and  especially  in  those 
states  where  the  post-war  inflation  had  been  accompanied  by  a  gen- 
eral movement  to  capitalize,  particularly  land  values,  on  a  basis  of 
war-time  earnings.  The  sudden  decline  in  foreign  market  demand 
for  American  agricultural  products  caused  a  slump  in  farm  prices 
and  consequent  embarrassment  to  those  who  had  bought  land  at 
unprecedented  acre  values  or  leased  on  a  basis  of  abnormally  high 
acre  rental.  Added  to  this  was  a  breakdown  of  the  transportation 
systems  operated  during  the  war  by  the  railroad  administration, 
which  was  experiencing  difficulty  in  adjusting  to  a  peace  basis,  caus- 
ing congestion  and  a  further  drop  in  prices  to  the  farmer  for  his  ac- 
cumulation of  grain  and  other  farm  products.  This  situation 
presented  some  problems  in  post-war  readjustment  the  solution  of 
which  required  courage,  wisdom  and  time. 


CHAPTER  XXVI 

THE  POST-WAR  PERIOD  OF  INFLATION  AND  THE 
FEDERAL  RESERVE  BANKS 

General  conditions  during  1919  and  1920 — Discount  policy  of  the  Federal  Reserve  Board — 
Criticistns  of  currency  and  credit  inflation — The  "secret"  meeting — Relation  of  the 
Federal  Reserve  Banks  to  price  decline — Congressional  commission  of  agricultural 
inquiry — Progressive  discount  rates  established  by  the  Federal  Reserve  Bank  of  St. 
Louis — Conditions  during  1921  and  1922. 

During  the  war,  the  principal  strain  upon  the  Federal  Reserve 
banks  came  from  financing  for  the  Government,  on  a  scale  hitherto 
undreamed  of.  We  have  seen  how  adequately  the  Federal  Reserve 
banks  functioned  in  handling  the  System's  burden  in  war  financing. 
With  the  sudden  termination  of  the  war,  the  optimism  which  en- 
veloped the  entire  United  States  reflected  itself  in  a  wild  expansion 
under  the  delusion  that  the  wartime  level  of  prices  must  be  a  thing  of 
permanence,  in  spite  of  the  well  proved  law  of  supply  and  demand, 
and  demoralization  of  the  agencies  of  production  and  distribution 
presented  the  Federal  Reserve  banks  with  the  new  problem  of  dis- 
criminating between  legitimate  needs  for  credit  accommodation  and 
those  of  speculation  or  extravagance. 

The  year  1919  was  one  of  slow  readjustment,  witnessing  as  it  did 
the  return  and  demobilization  of  about  two  million  soldiers,  the  plac- 
ing of  industries  on  a  peace  footing,  and  the  removal  of  most  of  the 
wartime  restrictions.  The  industrial  unrest  and  economic  confusion 
which  continued  well  into  1922  can  be  readily  explained;  reduced 
production,  increased  domestic  consumption,  high  prices,  and  un- 
precedented extravagance,  all  contributed  their  portion. 

Illinois  and  the  Seventh  Federal  Reserve  district  presented  the 
same  problem  as  any  other  district  largely  agricultural,  but  with  con- 
siderable manufacturing  scattered  throughout  its  area.  In  such  re- 
gions the  diversity  of  activity  doubtless  tends  to  intensify  the  prob- 
lems of  production,  distribution,  and  credit  which,  in  turn,  involve 
seasons  of  growth  as  well  as  harvest  and  transportation.     Both  the 

467 


4G8  FINANCING  AN  EMPIRE 

St.  Louis  and  the  Chicago  Federal  Reserve  banks  were  called  upon 
to  finance  a  greater  volume  of  commercial,  industrial,  and  agricul- 
tural business  than  ever  before,  and  their  usefulness  was  further 
demonstrated  in  the  flotation  of  the  Victory  Loan  and  the  meeting 
of  member  bank  requirements  for  commercial  loans  to  their  cus- 
tomers. 

The  year  1919  closed  with  commodity  prices  at  abnormal  levels 
and  general  inflation  in  all  branches  of  activity.  The  consuming 
public  seemed  engaged  in  a  riot  of  extravagant  expenditure,  with 
the  result  that  merchants  and  manufacturers  found  difficulty  in  meet- 
ing the  demands  for  all  kinds  and  varieties  of  goods,  regardless  of 
price.  Meanwhile,  there  was  growing  resentment  in  the  public  mind 
against  prevailing  high  prices;  the  war  had  been  over  for  many 
months,  and  the  growing  discontent  made  excellent  press  copy,  with 
the  result  that  numerous  so-called  buyers'  strikes  were  called,  which, 
while  not  in  themselves  doing  much  toward  the  restoration  of  a  nor- 
mal status,  did  promote  sober  thinking  and  directed  sentiment  into 
better  channels. 

The  first  half  of  1920  was  a  continuance  of  the  conditions  of  the 
preceding  year,  but  by  midsummer  signs  of  slowing  down  in  business 
became  rather  obvious.  Certain  basic  commodities,  silk,  wool,  sugar, 
and  hides,  slumped  with  a  disturbing  suddenness;  merchants  imme- 
diately adopted  policies  of  greater  conservatism  in  buying,  especially 
for  future  delivery,  and  the  great  commodity  markets  rapidly  changed 
from  complete  domination  by  sellers  to  the  advantage  of  the  bujrers. 
The  relatively  good  employment  of  labor,  however,  together  with  the 
excellent  crop  prospects,  blinded  many  to  the  coming  period  of  sharp 
readjustment,  whose  approach  was  also  hidden  by  the  apparently 
still  unlimited  buying  power  of  the  public. 

A  serious  aspect  of  the  turn  of  events  of  1920  lay  in  the  fact  that 
the  abundant  crops  of  that  year  were  planted  and  harvested  during 
the  period  of  highest  costs,  but  came  on  the  market  for  the  most  part 
during  the  months  of  falling  prices.  Early  forecasts  of  crops  stimu- 
lated the  inflated  conditions  under  which  the  country's  business  was 
operating.  The  hopes  for  abundant  crops  were  realized,  but  ex- 
pectations of  high  prices  did  not  materialize  save  in  the  case  of  early 
produce.  Rural  communities  almost  at  once  proceeded  to  retrench; 
new  construction  and  improvements  in  country  districts  were  aban- 
doned or  severely  curtailed,  with  a  resultant  effect  on  the  entire  dis- 
tributing and  manufacturing  machinery.    This  again  returned  to  the 


HOW  PRICE   READJUSTMENT  WAS  MET 

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-v  lYUciul  Reserve  Bank  of  Chicago) 

THE  ABOVE  CHART  SHOWS  THE  TREND  IX  ILLINOIS  MEMBER  BANK  BORROW- 
IN*  JS  AT  THE  FEDERAL  RESERVE  DURING  THE  POST-WAR  PRICE  READJUSTMENT 
The   borrowings   are    in    millions    of   dollars,    live    stock    price    in    dollars,    and    the    price    of 
corn   is   expressed   in    the   live   stock   conversion   equivalent 


HISTORY  OF  BANKING  IN  ILLINOIS  471 

producer's  door,  thus  forming  a  complete  economic  cycle  which,  with 
other  lesser  factors,  brought  stagnation  in  business  toward  the  close 
of  the  year. 

It  is  not  difficult  to  understand  the  size  of  the  problem  presented 
to  the  two  Federal  Reserve  banks  in  whose  respective  districts  the 
state  of  Illinois  lies.  Credit  requirements  rose  to  enormous  dimen- 
sions and  of  necessity  extended  over  longer  periods  than  in  any  pre- 
ceding year  of  the  System's  operation.  Crops,  produced  at  high 
cost  and  in  unusually  large  volume,  moved  to  market  very  slowly, 
thus  requiring  enormous  financing. 

Xeither  the  Federal  Reserve  Board  nor  any  of  the  twelve  Re- 
serve institutions  was  ignorant  of  the  unfortunate  economic  trend 
during  the  year  or  more  immediately  following  the  Armistice.  In- 
deed, several  months  prior  to  the  end  of  the  war,  an  official  circular 
to  member  banks  and  trust  companies,  had  been  issued  by  the  Federal 
Reserve  Board  urging  careful  discrimination  between  necessary  and 
unnecessary  credit  extension  and  making  well-worded  pleas  for  a 
program  of  careful  retrenchment  and  saving  on  the  part  of  every 
individual  and  every  business  interest. 

The  signing  of  the  Armistice,  rather  than  ushering  a  period  of 
Utopian  bliss  into  American  economic  life,  seemed  to  entail  problems 
as  grave  as  or  even  more  difficult  of  solution  than  those  connected 
with  the  prosecution  of  the  war  itself.  Dr.  A.  C.  Miller  of  the  Board, 
early  in  1919,  in  an  address  before  the  American  Academy  of  Political 
and  Social  Science,  urged  against  inflation  of  any  kind,  saying  "where 
there  has  been  inflation  there  must  follow  deflation  as  a  necessary 
condition  to  the  restoration  of  economic  health.  Contraction  of  bank 
deposits  and  currency,  through  the  liquidation  of  war  loan  accounts, 
is  clearly  indicated  as  the  next  and  necessary  step  in  the  process  of 
bringing  the  credit  currency  and  price  situation  back  to  normal. 
The  problem  of  correcting  a  state  of  banking  inflation  is 
mainly  a  problem  in  saving.  We  must  either  put  more  goods  behind 
the  outstanding  volume  of  credit  and  currency — that  means  produc- 
tion— or  we  must  reduce  the  volume  of  credit  and  currency  to  suitable 
proportions — that  means  saving." 

This  brings  us  to  an  analysis  of  the  Board's  discount  policy  dur- 
ing the  years  immediately  following  the  Armistice,  and  the  applica- 
tion of  this  policy  by  the  two  Federal  Reserve  banks  serving  the 
state  of  Illinois.  It  must  first  be  pointed  out  that  the  problem  of 
the  rate  level  of  the  Federal  Reserve  Svstem  was  closelv  allied  with 


472  FINANCING  AN  EMPIRE 

the  problem  of  financing  the  war,  inasmuch  as  a  low  level  of  discount 
rates  was  necessary  to  insure  ready  accommodation  to  banks  whose 
customers  should  need  aid  in  the  matter  of  commercial  demands  re- 
sulting from  increased  business  in  connection  with  war  activities. 
So  the  Board,  before  the  subscriptions  to  the  first  Liberty  bond  issue 
were  closed,  approved  a  preferential  rate  of  discount  for  notes  se- 
cured by  Government  obligations  offered  by  member  banks  and,  in 
order  further  to  assist  the  Treasury  in  disposing  of  bonds,  the  Board 
authorized  Federal  Reserve  Banks  to  discount  notes  secured  by  Gov- 
ernment obligations  for  non-member  banks  upon  the  indorsement  of 
a  member  bank,  whether  made  by  non-member  banks  themselves  or 
by  their  customers,  when  the  proceeds  had  been  or  were  to  be  used 
for  the  purpose  of  carrying  Treasury  certificates  or  United  States 
bonds.  The  Board  thus  distinguished  between  commercial  loans  and 
loans  made  upon  the  security  of  Government  obligations. 

That  the  war  was  won  constitutes  vindication  of  the  policy,  but 
its  continuation  after  the  emergency  had  passed  has  brought  criticism. 

In  the  spring  of  1919,  several  of  the  Federal  Reserve  banks  urged 
a  general  rise  in  the  level  of  rates.  The  Board  in  general  had  ap- 
proved the  action  of  the  individual  Reserve  banks  in  discontinuing 
the  marked  discrimination  in  favor  of  paper  collateralled  by  govern- 
ment instruments,  seeing  no  purpose  in  giving  holders  of  govern- 
ment securities  preference  in  the  matter  of  interest  over  those  seeking 
funds  to  be  employed  in  agriculture,  commerce,  or  industry.  The 
Board,  however,  did  not  sanction  any  rate  increases  at  this  time,  the 
attitude  of  the  Treasury  which  was  then  busily  engaged  upon  the 
flotation  of  the  Victory  Loan  doubtless  accounting  for  its  failure  to 
apply  the  brakes. 

With  the  war  a  matter  of  history,  there  remained  no  appeal  to 
the  country's  patriotic  instincts  by  which  to  carry  over  this  last  loan. 
The  Treasury  consequently  felt  even  greater  need  of  the  coopera- 
tion of  the  Federal  Reserve  banks  than  for  the  Liberty  Loan  cam- 
paigns. The  success  with  which  the  Victory  Loan  "went  over"  was 
another  and  perhaps  crowning  achievement,  of  a  series  of  financial 
operations  hitherto  unparalleled  in  the  history  of  the  country,  which, 
nevertheless,  tended  to  accentuate  the  prevailing  tendency  toward 
overexpansion  and  speculation. 

On  June  7,  1919,  the  export  restrictions  on  gold  were  removed 
by  President  Wilson,  with  little  effect  on  the  general  situation. 
Prices  continued  to  advance,  wages  tended  to  keep  pace  and,  in  turn, 


HISTORY  OF  BANKING  IN  ILLINOIS  473 

prices  would  rise  again,  in  a  vicious  circle.  The  ever-rising  cost  of 
living  was  laid  at  the  door  of  the  Federal  Reserve  Board  by  many  of 
those  individuals  who  a  year  and  a  half  later  blamed  an  opposite 
movement  to  the  same  organization.  In  August,  1919,  the  Banking 
and  Currency  Committee  of  the  Senate  was  instructed  to  investigate 
and  report  "on  the  advisability  of  legislation  to  provide  for  the 
gradual  reduction  of  the  volume  of  currency  in  circulation."  The 
Federal  Reserve  Board  was  consulted,  inasmuch  as  the  presence  of 
the  Federal  Reserve  notes  in  circulation  was  regarded  as  a  possible 
cause  of  all  the  country's  monetary  and  inflationary  ills  at  the  time. 
In  a  letter  dated  August  8,  1919,  among  other  pertinent  questions, 
the  Board  called  attention  to  the  fact  that  the  volume  of  Federal 
Reserve  notes  in  circulation  cannot  become  excessive  .  .  .  "there 
cannot  at  any  time  be  more  Federal  Reserve  notes  in  circulation  than 
the  needs  of  the  country  at  the  present  level  of  prices  require,  and  as 
the  need  abates,  the  volume  of  notes  outstanding  will  be  correspond- 
ingly reduced  through  redemption."  This  document  closed  with  a 
paragraph  worthy  of  quotation  in  full: 

"The  Federal  Reserve  Board  believes  that  any  currency  legisla- 
tion at  this  time  is  unnecessary  and  undesirable,  and  would  suggest 
that,  whether  viewed  from  an  economic  or  financial  standpoint,  the 
remedy  for  the  present  situation  is  the  same,  namely  to  work  and  to 
save;  to  work  regularly  and  efficiently  in  order  to  produce  and  dis- 
tribute the  largest  possible  volume  of  commodities;  and  to  exercise 
reasonable  economies  in  order  that  money,  goods,  and  services  may 
be  devoted  primarily  to  the  liquidation  of  debt  and  to  the  satisfaction 
of  the  demand  for  necessities,  rather  than  to  indulgence  in  extrava- 
gancies or  the  gratification  of  a  desire  for  luxuries." 

Early  in  the  autumn  of  1919,  the  Federal  Advisory  Council  rec- 
ommended that  all  rates  be  raised,  but  at  the  urgency  of  Treasury 
officials,  who  stated  that  after  January  1  no  objections  would  come 
from  that  source,  action  was  deferred.  Prevailing  rates  abroad  were 
much  higher  than  those  maintained  by  the  Federal  Reserve  System, 
and  brought  additional  stress  on  the  American  money  market,  with 
consequent  high  rates  for  call  money,  and  commercial  paper  at  six 
to  eight  j>er  cent.  Conditions  grew  so  strained  that  during  November 
Federal  Rates  were  put  up  one-quarter  of  one  per  cent,  a  rise  too 
small,  however,  to  exert  any  counter  influence  to  the  trend  toward 
inflation.  The  condition  in  which  the  railroads  were  left  when  gov- 
ernment control  ceased,  was  a  contributory  factor  to  the  strain  upon 


474  FINANCING  AX  EMPIRE 

the  country's  banking  machinery,  inasmuch  as  crop  movement  was 
severely  hampered  by  lack  of  railroad  equipment.  Furthermore, 
there  existed  a  strong  tendency  on  the  part  of  many  producers  to 
hold  for  higher  prices,  which  in  turn  reacted  upon  the  demand  for 
credit,  while  swollen  inventories  constituted  the  last  straw  on  the 
camel's  back. 

Matters  were  allowed  to  drift  from  bad  to  worse  during  the  early 
months  of  1920.  There  was  a  meeting  of  the  Federal  Advisory 
Council  with  the  Federal  Reserve  Board  on  May  18  of  that  year, 
which  has  often  been  miscalled  the  "Secret  Meeting,"  the.  "Crime  of 
1920,"  the  "great  conspiracy,"  and  other  names  indicative  of  crim- 
inal intent  against  this  or  that  class  of  industry. 

The  charge  of  secrecy  against  the  May  meeting  was  readily 
proved  false.  The  Federal  Reserve  Act  (Section  13)  required  this 
Federal  Advisory  Council  (a  group  of  twelve  bankers,  one  from 
each  Federal  Reserve  district  elected  by  the  Board  of  Directors  of 
each  of  the  respective  Reserve  institutions),  to  meet  at  least  four 
times  a  year.  The  function  of  the  Council  was  to  advise  the  Federal 
Reserve  Board  about  the  affairs  of  the  reserve  banking  system. 
Class  "A,"  or  banker  directors  of  Federal  Reserve  banks,  were  in- 
vited to  attend  this  gathering  and  a  number  of  them  were  present. 
There  were  also  in  attendance  some  members  of  the  Orderly  Defla- 
tion Committee  of  the  American  Bankers  Association. 

The  necessity  for  holding  such  a  meeting  at  that  time  is  apparent 
from  the  fact  that  on  May  17,  1920,  the  day  before  this  group  con- 
vened, the  United  States  Senate  unanimously  passed  the  following 
resolution : 

"RESOLVED,  That  the  Federal  Reserve  Board  be  directed  to 
advise  the  Senate  what  steps  it  proposes  to  take  or  to  recommend  to 
the  member  banks  of  the  Federal  Reserve  System  to  meet  the  exist- 
ing inflation  of  currency  and  credits  and  consequent  high  prices,  and 
what  further  steps  it  proposes  to  take  or  recommend  to  mobilize 
credits  in  order  to  move  the  1920  crop." 

The  meeting  in  its  very  nature  emphasized  the  necessity  for  wide 
publicity.  Its  keynote  was  a  comprehensive  address  by  Governor 
Harding  of  the  Federal  Reserve  Board,  describing  existing  condi- 
tions. As  soon  as  the  meeting  was  opened  for  general  discussion, 
the  late  Mr.  A.  B.  Hepburn,  a  prominent  Xew  York  banker  arose 
and  said: 

"I   would  like  to  inquire  if  any  arrangement  has  been  made  to 


HISTORY  OF  BANKING  IN  ILLINOIS  475 

place  your  opening  remarks  before  the  public,  Governor  Harding, 
because  if  not,  I  think  that  should  be  done  and  that  they  should  be 
given  the  widest  distribution." 

Governor  Harding  replied:  "I  have  a  synopsis  prepared  which 
was  given  to  the  press  on  yesterday  for  release  tomorrow  morning." 

Reports  of  this  "secret"  meeting  appeared  in  daily  newspapers 
the  country  over,  and  a  public  statement  was  sent  to  newspapers 
giving  details  of  the  discussion  which  took  place.  Here  are  quota- 
tions from  Governor  Harding's  opening  address,  which  were  widely 
circulated  : 

"Our  problem,  therefore,  is  to  check  further  expansion  and  to 
bring  about  a  normal  and  healthy  liquidation  without  curtailing  essen- 
tial production  and  without  shock  to  industry,  and,  as  far  as  possible, 
without  disturbance  of  legitimate  commerce  and   business. 

"The  solution  of  the  problem  confronting  us  will  require  the  co- 
operation of  all  banks  and  the  public.  Whatever  personal  sacrifices 
may  be  necessary  for  the  general  economic  good  should  be  made. 
The  wartime  spirit  to  do  things  that  are  worth  while  must  be  revived, 
and  there  should  be  the  fullest  cooperation  in  an  effort  to  produce 
more,  save  more,  and  consume  less.  The  banks  should  lean  less 
heavily  upon  the  Federal  Reserve  banks,  and  rely  more  upon  their 
own  resources.  Unnecessary  and  habitual  borrowing  should  be  dis- 
couraged, and  the  liquidation  of  long-standing  non-essential  loans 
should  proceed.  Drastic  steps,  however,  should  be  avoided  and  the 
methods  adopted  should  be  orderly.  Gradual  liquidation  will  result 
in  permanent  improvement,  while  tno  rapid  deflation  would  be  in- 
jurious and  must  be  avoided. 

"No  express  condition  is  made  [in  the  Federal  Reserve  Act] 
regarding  the  essential  or  non-essential  character  of  the  transaction 
giving  rise  to  a  note  which  may  be  offered  for  discount,  and  the  Fed- 
eral Reserve  Board  is  not  required  and  properly  could  not  be  expected 
generally  to  adopt  such  a  criterion  of  eligibility.  It  is  too  much  a 
matter  of  local  conditions  and  local  knowledge  to  justify  at  this  time 
any  general  country-wide  ruling  by  the  Board,  even  if  such  a  ruling 
were  deemed  helpful. 

"On  the  other  hand,  there  is  nothing  in  the  Federal  Reserve  Act 
which  requires  a  Federal  Reserve  bank  to  make  any  investment  or  to 
rediscount  any  particular  paper  or  class  of  paper.  The  language  of 
both  sections  13  and  14  is  permissive  only.  Section  4  of  the  Federal 
Reserve  Act,  however,  requires  the  directors  of  the  Federal  Reserve 


47G  FINANCING  AX  EMPIRE 

bank  to  administer  its  affairs  'fairly  and  impartially  and  without 
discrimination  in  favor  of  or  against  any  member  bank,'  and  subject 
to  the  provisions  of  law  and  the  orders  of  the  Federal  Reserve  Board 
to  extend  'to  each  member  bank  such  discounts,  advancements,  and 
accommodations  as  may  be  safely  and  reasonably  made  with  due 
regard  for  the  claims  and  demands  of  other  member  banks.'  Thus 
the  directors  of  a  Federal  Reserve  bank  have  the  power  to  limit 
the  volume  and  character  of  loans  which  in  their  judgment  may  be 
safely  and  reasonably  made  to  any  member  bank." 

The  desire  of  the  Federal  Reserve  Board  to  have  the  people  get 
the  facts  about  the  meeting  was  emphasized  by  the  following  resolu- 
tion, which  was  unanimously  passed: 

"Resolved,  That  the  bankers  here  assembled,  in  their  capacity 
as  members  of  the  Federal  Advisory  Council,  in  their  capacity  as 
directors  of  the  Federal  Reserve  banks  of  the  country,  in  their  capac- 
ity as  members  of  the  Orderly  Deflation  Committee  of  the  American 
Bankers'  Association,  and  in  their  capacity  as  officers  and  directors 
of  banks  doing  business  in  their  various  cities  of  the  country,  approve 
the  sentiments  expressed  in  the  very  able  address  of  Governor  Hard- 
ing as  representing  the  views  of  the  Federal  Reserve  Board,  and 
also  be  it 

"Further  Resolved,  That  they  believe  that  the  widest  publicity 
should  be  given  the  address,  and  further  that  they  hereby  agree  to 
abide  by  the  spirit  of  the  address  in  the  conduct  of  their  own  affairs, 
and  that  they  will  encourage  its  general  adoption  by  the  bankers  and 
people  of  our  country." 

It  was  out  of  this  meeting  that  most  of  the  fanatical  charges 
against  the  Federal  Reserve  System  have  come,  particularly  the  ac- 
cusation that  the  Board  was  responsible  for  the  deflation  which  took 
place  in  1920,  and  especially  for  that  of  the  farmer. 

Economists,  however,  are  agreed  that  deflation  started  in  Japan 
and  proceeded  to  some  lengths  before  it  reached  the  United  States. 
In  short,  it  was  a  world-wide  movement,  not  confined  to  any  country, 
not  to  any  class  in  any  particular  country.  It  is  true  that  it  started 
in  the  United  States  in  May,  1920,  the  time  of  the  so-called  "Secret 
Meeting"  of  the  Federal  Reserve  Board.  But  significantly  enough, 
despite  the  "Secret  Meeting,"  and  despite  the  fact  that  deflation 
began  in  May,  1920,  for  seven  months  thereafter  loans  made  by  the 
Federal  Reserve  banks  to  their  member  banks  increased  in  large 
measure  before  they  commenced  to  drop.     Government  figures  show 


HISTORY  OF  BANKING  IN  ILLINOIS  477 

that  wholesale  prices  of  commodities  taken  from  a  large  number  of 
common  articles  decreased  thirty-two  per  cent  from  January  1,  1920, 
to  January  1,  1921,  and  figures  from  the  Department  of  Agricul- 
ture, giving  average  prices  by  the  month  on  agricultural  products 
show  that  wheat  dropped  from  $2.54  in  July,  1920,  to  $1.49  in  Janu- 
ary, 1921,  a  decline  of  41.4  per  cent  in  six  months;  oats  dropped 
from  $1.04  in  July,  1920,  to  40  cents  in  January.  1921,  a  decline  of 
.5,5.8  per  cent  in  six  months;  corn  dropped  from  $1.86  in  July,  1920, 
to  67  cents  in  January,  1921,  a  decline  of  63.9  per  cent  in  six  months; 
and  cotton  fell  from  37.4  cents  in  July,  1920,  to  11. .5  cents  in  January, 
1921,  a  drop  of  69.3  per  cent  in  six  months. 

While  the  price  of  corn  was  declining  $1.38  a  bushel  or  63.8  per 
cent  between  May  15  and  December  11,  1920,  loans  of  the  Federal 
Reserve  Bank  of  Chicago  to  Illinois  member  banks  exclusive  of 
Chicago  expanded  $5,812,000  or  66.3  per  cent.  While  hogs  declined 
$7.55  per  hundred  pounds  or  43.9  per  cent,  between  September  20 
and  December  11  of  the  same  year,  loans  to  Illinois  members  out- 
side of  Chicago  expanded  $6,303,000  or  76.1  per  cent.  Steers  de- 
clined $4.55  per  hundred  pounds,  or  29.3  per  cent,  from  September 
18  to  December  11,  during  which  period  loans  to  Illinois  members 
outside  of  Chicago  expanded  $6,303,000  or  76.1  per  cent.  These 
facts  demonstrate  beyond  question  the  substantial  relief  obtained  by 
member  banks  from  the  Federal  Reserve  Bank  of  Chicago  for  the 
people  in  their  time  of  distress,  and  should  lav  at  rest  forever,  the 
charge  of  discrimination  against  the  farmer,  or  any  other  class  of 
economic  society,  in  the  matter  of  after-war  adjustment  or  price 
fluctuation. 

The  Federal  Reserve  banks  could  have  influenced  these  downward 
price  movements  in  only  two  ways,  i.  e.,  by  the  contraction  of  loans, 
or  by  the  contraction  of  currency.  The  rediscounts  of  all  the  Fed- 
eral Reserve  banks  for  member  banks  on  January  1,  1920,  were 
$2,215,305,000,  whereas  on  January  1,  1921,  they  were  $2,687,393,000, 
showing  an  increase  in  the  year  of  1920  of  $472,088,000.  Redis- 
counts of  the  Federal  Reserve  Bank  of  Chicago  for  member  banks 
on  January  1,  1920,  were  $267,639,000,  and  on  the  opening  day  of 
the  year  1921  stood  at  $475,563,000,  an  increase  during  the  year 
1920  of  $207,924,000.  Federal  Reserve  notes  in  circulation  in  all 
Federal  Reserve  banks  on  January  1,  1920,  were  $3,008,878,000,  but 
on  the  corresponding  date  of  the  following  year  stood  at  $3,336,- 
281,000,    showing   an    increase    in    circulation    during   that   year    of 


478  FINANCING  AN  EMPIRE 

$327,403,000,  while  the  circulation  of  the  Federal  Reserve  Bank  of 
Chicago  increased  by  $45,256,000  during  1920. 

The  figures  show  positively  that  the  decline  in  prices  of  commodi- 
ties, and  especially  agricultural  products,  was  not  due  to  any  action 
of  the  Federal  Reserve  System.  They  cover  the  period  over  which 
drastic  deflation  was  taking  place.  The  truth  is  that  not  only  did 
the  Federal  Reserve  banks  have  no  part  in  the  decline  of  farm 
products  but  that,  in  an  effort  to  protect  the  agricultural  communi- 
ties, a  very  large  part  of  the  increase  in  loans  carried  by  the  System 
during  1920  came  from  agricultural  districts  and  these  loans  were 
made  for  the  benefit  of  agriculture. 

Congress  became  alarmed  at  the  situation  created  by  the  progress 
of  the  inflation  movement,  and  in  1921,  in  order  to  discover  a  remedy, 
appointed  a  Joint  Commission  of  Agricultural  Inquiry,  a  non-par- 
tisan commission  charged  with  the  duty  of  investigating  the  causes 
of  the  existing  condition  of  agriculture,  together  with  an  analysis  of 
the  banking  and  financial  resources  and  credits  of  the  country. 
Among  other  questions  thoroughly  investigated  by  the  Commission 
was  the  organization  and  operation  of  the  Federal  Reserve  banks 
and  their  activities,  in  relation  to  any  part  they  might  have  had  either 
in  causing  the  crisis  or  in  attempting  to  avert  it.  Following  is  the 
personnel  of  the  Commission: 

Sydney  Anderson,  Minnesota,  Chairman 

HOUSE     MEMBERS  SENATE    MEMBERS 

Ogden  L.  Mills,  New  York  Irving    L.    Lenroot,   Wisconsin 

Frank  H.  Funk,  Illinois  Arthur  Capper,  Kansas 

Hatton  W.  Sumners,  Texas  Charles  L.  McXary,  Oregon 

Peter  G.  Ten  Eyck,  New  York  Joseph  T.  Robinson,  Arkanvi> 

Pat  Harrison,  Mississippi 

Clyde  L.  King,  Economist 

Irving  S.  Paull,  Secretary 

The  Commission  found  definitely  that  the  Federal  Reserve  banks 
very  materially  increased  their  loans  in  agricultural  sections  during 
the  period  of  deflation.     The  report  on  that  question  said : 

.  .  .  "between  May  4,  1920,  and  April  28,  1921,  the  loans 
and  discounts  of  banks  in  agricultural  counties  throughout  the 
country  declined  $36,500,000,  or  slightly  more  than  1.2  per  cent;  the 
loans  and  discounts  of  banks  in  semi-agricultural  counties  declined 
$18,700,000,  or  1.3  per  cent;  and  the  loans  and  discounts  of  banks  in 
non-agricultural  counties  declined  $827,100,000,  or  5.(5  per  cent.  The 
borrowings  from  the  Federal  Reserve  banks  by  banks  in  agricul- 
tural counties  increased  $127,600,000  or  56. (5  per  cent:  borrowings 


HISTORY  OF  BANKING  IN  ILLINOIS  479 

by  banks  in  semi-agricultural  counties  remained  practically  sta- 
tionary: and  the  borrowings  by  banks  in  non-agricultural  counties 
declined  $629,100,000,  or  28..5  per  cent." 

The  report  further  states: 

"An  analysis  of  the  figures  in  these  studies  seems  to  justify  the 
conclusion : 

1.  That  the  expansion  of  bank  loans  in  rural  districts  during 
the  period  of  inflation  ending  June,  1920,  was  relatively  greater  than 
in  the  industrial  sections,  taken  as  a  whole. 

2.  That  the  action  of  the  Federal  Reserve  Board  and  the  Fed- 
eral Reserve  banks  during  the  fifteen  months  preceding  April  28, 
1921,  did  not  produce  a  greater  curtailment  of  bank  loans  in  the 
rural  districts  than  in  the  financial  and  industrial  sections. 

3.  Credit  was  not  absorbed  by  the  financial  centers  at  the  ex- 
pense of  the  rural  communities  for  the  purpose  of  speculative  activi- 
ties." 

And  on  page  120: 

"A  comparison  of  the  tables  of  rediscounts  of  agricultural  and 
livestock  paper  with  the  table  showing  all  other  discounts  indicates 
that  the  increase  in  discounts  of  agricultural  and  live-stock  paper 
was  relatively  greater  than  the  rediscounts  of  all  other  paper,  and 
that  the  liquidation  of  discounts  of  agricultural  and  live-stock  paper 
was  relatively  less  than  the  liquidation  of  all  other  discounts." 

Between  December  31,  1919,  and  July  2,  1920,  the  Federal 
Reserve  Bank  of  Chicago  raised  its  rediscount  rates  one  and  one-half 
per  cent,  to  a  maximum  of  seven  per  cent,  and  loans  to  member  banks 
increased  from  $267,638,173  to  $430,234,292.  Even  after  the  in- 
crease in  the  rates,  borrowings  of  member  banks  continued  to  ex- 
pand, and  it  was  necessary  for  some  of  the  middle  western  and 
southern  Federal  Reserve  banks  to  borrow  over  $250,000,000  from 
the  eastern  Federal  Reserve  banks  to  maintain  their  legal  reserve 
against  deposits  and  currency.  The  credit  stringency  was  reflected 
in  the  continued  borrowing  between  Federal  Reserve  banks  every 
month  of  the  years  1919,  1920,  and  1921.  The  highest  rate  generally 
applicable  to  farm  paper  of  ninety  days  to  six  months'  maturity  was 
seven  per  cent.  The  rates  of  the  Federal  Reserve  Bank  of  Chicago 
from  1919  to  1921  on  farm  paper  maturing  between  ninety-one  days 
and  six  months  was  five  and  one-half  per  cent  during  the  entire  year 
1919,  raised  to  six  per  cent  in  January,  1920,  and  to  seven  per  cent 
in  June,  1920.     In  31a v.  1921.  this  rate  was  reduced  to  six  and  one- 


480  FINANCING  AN  EMPIRE 

half  per  cent,  still  further  to  six  per  cent  in  July,  1921,  and  to  five 
per  cent  in  November,  1921. 

During  the  year  1920  the  normal  discount  rates  of  the  Federal 
Reserve  Bank  of  St.  Louis  on  commercial  and  agricultural  paper  did 
not  exceed  six  per  cent,  and  the  normal  rates  on  collateral  notes  or 
rediscounts  secured  by  government  war  obligations  were  not  in  ex- 
cess of  five  and  one-half  per  cent.  The  normal  discount  rates  effective 
at  the  opening  and  closing  of  the  year  ranged  from  four  and  one- 
half  per  cent  on  member  banks'  collateral  notes  secured  by  certifi- 
cates of  indebtedness  to  five  and  three-fourths  per  cent  on  rediscounts 
with  maturities  of  one  to  ninety  days  secured  by  War  Finance  Cor- 
poration bonds  and  to  six  per  cent  on  agricultural  and  live-stock 
paper,  the  latter  level  becoming  operative  July  1,  and  remaining  in 
effect  throughout  the  remainder  of  the  year. 

On  May  26,  1920,  the  Federal  Reserve  Bank  of  St.  Louis  estab- 
lished what  was  known  as  a  progressive  discount  rate,  as  distinguished 
from  the  "normal"  rate.  Under  it  a  member  bank  was  charged 
the  normal  discount  rate  on  its  borrowings  up  to  the  amount  of  its 
basic  line — a  computed  figure  representing  the  amount  of  potential 
Federal  Reserve  credit  to  which  each  member  bank  is  entitled' — and 
on  each  additional  one-fourth  of  its  basic  line  borrowed,  one-half  of 
one  per  cent  was  added  to  the  rate.  The  basic  line  was  calculated 
by  adding  the  amount  paid  in  by  a  member  bank  on  its  capital  stock 
subscription  to  sixty-five  per  cent  of  its  required  reserve  and  then 
multiplying  this  total  by  two  and  one-half.  The  charges  under  the 
progressive  rates  were  figured  on  the  average  borrowings  of  member 
banks  for  the  same  periods — seven  days — used  in  figuring  their 
average  reserves.  Liberty  Bonds  or  Victory  Notes  actually  owned 
by  the  borrowing  bank  on  April  1,  1920,  and  Treasury  certificates 
of  indebtedness  owned  on  date  of  hypothecation,  were  exempt  from 
the  application  of  the  progressive  discount  rate.  Other  borrowings 
which  perhaps  reflected  directly  unwarranted  credit  expansion  or 
frozen  credits  were  subject  to  the  progressive  rate. 

On  December  31,  1920,  there  was  a  total  membership  in  the 
Eighth  district  of  571,  and  the  number  subject  to  the  progressive 
discount  rate  varied  from  twenty-eight  in  May  to  111  in  December. 
The  number  of  banks  which  borrowed  in  excess  of  their  basic  line 
was  continually  larger  than  the  number  subject  to  the  progressive 
rates  of  discount  because  of  the  exemption  of  collateral  notes  se- 
cured  by  government   war   obligations.      There   was,   moreover,   no 


HISTORY  OF  BANKING  IN  ILLINOIS  481 

period  during  the  year  when  twenty  per  cent  of  the  member  banks 
were  paying  a  progressive  rate  of  discount;  over  eighty  per  cent  of 
the  banks  were  receiving  accommodation  in  the  Eighth  district  at 
the  normal  rates.  The  average  rate  of  earnings  of  the  bank  on  all 
bills  discounted  for  the  last  half  of  the  year,  exclusive  of  the  interest 
earned  under  the  schedule  of  progressive  rates,  was  o.64  per  cent. 
The  average  rate  of  earnings,  including  the  progressive  rates,  for  the 
same  months  amounted  to  6.13  per  cent.  At  no  time  during  the  year, 
furthermore,  did  the  average  interest  on  all  bills  discounted  reach 
as  high  as  seven  per  cent. 

The  progressive  rate  of  discount  was  in  all  probability  originated 
by  W.  P.  G.  Harding,  then  governor  of  the  Federal  Reserve  Board, 
and  was  authorized  by  a  bill  known  as  the  Phelan  Act,  adopted  by 
both  the  House  and  Senate  early  in  1920.  The  philosophy  of  the 
progressive  rate  was  that,  after  a  member  bank  had  obtained  a  cer- 
tain amount  of  rediscount  credit,  the  cost  of  additional  credit  as 
imposed  by  the  progressive  rate,  would  deter  application  at  the  various 
Federal  Reserve  banks  for  further  credit,  thus  relieving  the  Reserve 
institutions  from  creating  hard  feeling  by  refusing  additional  credit 
extension. 

Many  authorities  regarded  the  Phelan  Act  as  evasive,  inasmuch 
as  it  sought  to  apply  the  brakes  by  an  automatic  method  instead  of 
by  direct  action.  Indeed,  while  the  original  idea  was  to  make  the 
progressive  discount  rate  compulsory  upon  the  Federal  Reserve 
banks,  in  its  ultimate  form  it  was  optional,  and  was  rendered  opera- 
tive by  only  four  of  the  Reserve  banks,  namely,  St.  Louis,  Kansas 
City,  Atlanta,  and  Dallas.  Dr.  H.  Parker  Willis,  in  analyzing  the 
propriety  and  efficiency  of  the  progressive  rate  as  applied,  said  in 
part : 

"It  was  essentially  another  serious  and  regrettable  departure 
from  the  theory  of  the  Federal  Reserve  Act.  That  theory  had 
been  based  upon  the  idea  of  unlimited  discount  of  all  offerings  of 
paper  of  the  eligible  varieties,  with  general  advances  in  rates  or  nar- 
rowing of  eligibility  for  the  purpose  of  applying  a  check  when  nec- 
essary. The  Phelan  Act  adopted  the  opposite  point  of  view  and 
shaped  its  policy  upon  the  theory  that  the  best  form  of  check  to  an 
over-rapid  growth  of  credit  was  to  be  found  in  a  cash  penalty,  af- 
forded by  the  exacting  of  a  progressive  rate  of  discount  from  each 
customer.  Later  experience  was  to  show  in  a  definite  way  how 
unwise  this  plan  certainly  was,  but  it  did  not  require  experience  to 


482  FINANCING  AN  EMPIRE 

perceive  the  theoretic  defects  of  the  scheme,  since  they  were  inherent 
and  grew  out  of  a  desire  to  find  an  easy  way  of  refusing  something 
whose  withholding  could  best  and  most  wholesomely  be  accomplished 
by  a  blunt  statement  on  the  subject." 

The  progressive  rate  was  not  adopted  by  the  Federal  Reserve 
Bank  of  Chicago.  Xo  figures  are  available  as  to  the  extent  to  which 
southern  Illinois  banks  were  involved  in  its  application  through  the 
St.  Louis  bank,  but  on  the  basis  of  the  figures  previously  given,  it  is 
safe  to  say  that  only  in  a  few  cases  did  Illinois  banks  pay  more  than 
the  normal  discount  rates  for  accommodation. 

During  1921.  rediscount  rates  at  the  Federal  Reserve  Bank  of 
Chicago  were  reduced  three  times:  on  May  7,  from  7  to  6l  L>  per  cent; 
on  July  30,  from  6l/o  to  6  per  cent:  and  on  November  3,  from  6  to  5 
per  cent.  These  reductions  did  not  seem  to  check  the  general  decline 
of  bills  discounted,  as  member  banks  appreciated  the  importance 
of  liquidating  their  borrowings  to  a  level  permitting  them  once  more 
to  operate  on  a  basis  of  seasonal  requirements.  The  slight  increase 
in  borrowings  usual  during  the  last  four  months  of  other  years  and 
resulting  from  demands  for  harvesting  and  crop  movement,  was  not 
in  evidence  in  1921,  a  fact  explained  in  part  by  advances  totaling 
more  than  fifteen  million  dollars,  made  for  agricultural  purposes  by 
the  War  Finance  Corporation  to  the  banks  in  the  Seventh  district. 

Out  of  the  total  membership  of  1,443  in  the  year  1921,  applica- 
tions for  rediscount  were  received  from  1.191  banks,  297  of  which 
applications  came  from  Illinois  banks.  Below  is  the  number  of 
applications  with  the  amount  of  accommodation  extended  in  that 
state  during  the  vears  1919  to  192.5,  inclusive: 


1919 
1920 
1921 
1922 
1923 
1924 
192,5 


■lumber  of  Banks 

Accommodated 

(Illinois) 

Amount 

208 

$2,254,681,713 

277 

2,982,797,786 

297 

1.687,313,049 

282 

628,790,000 

244 

1.232,182,000 

242 

348,697,000 

224 

839,128,000 

Operations  of  the   Federal   Reserve   Bank  of   St.   Louis  during 
1921  were  affected  by  agricultural  conditions  in  that  district.     Low 


HISTORY  OF  BANKING  IN  ILLINOIS  483 

prices  for  practically  all  crops  except  cotton,  coupled  with  high 
prices  for  necessary  supplies,  severely  handicapped  farmers  in  that 
District  and  throughout  the  middle  west,  as  did  a  high  level  of 
freight  rates,  which  in  many  cases  rendered  shipment  of  produce 
unprofitable.  To  offset  reduced  incomes  it  became  necessary  for 
farmers  to  practice  rigid  economies,  and  the  soil  was  prepared  and 
fall  crops  jmt  in  at  lower  costs,  with  the  purchase  of  fewer  new 
implements  than  had  been  the  case  in  several  decades.  The  situation 
was  further  complicated  by  the  almost  complete  failure  of  the  cotton 
crop,  owing  to  an  unfavorable  growing  season  and  widespread  havoc 
on  the  part  of  boll  weevils.  Earlier  in  the  year,  in  fact  until  August 
or  thereabouts,  extremely  low  prices  for  this  commodity  prevailed, 
but  with  the  beginning  of  September  cotton  prices  moved  steadily 
upward,  and  were  well  sustained.  Fruit  crops  were  practically 
ruined  by  spring  freezes  and  cold  weather;  the  general  average  of 
other  small  crops,  however,  was  about  on  a  par  with  that  of  other 
years.  Every  possible  assistance  was  given  by  the  Federal  Reserve 
Bank  of  St.  Louis  to  the  farming  industry  through  its  member 
banks.  Toward  the  end  of  1921,  the  demand  for  credit  in  country 
districts  in  the  territory  under  the  jurisdiction  of  the  St.  Louis  in- 
stitution, was  mainly  for  the  purchase  of  livestock,  and  credit  in 
large  volume  was  granted  for  this  purpose.  For  Illinois  members 
to  the  number  of  181  in  that  year,  the  Federal  Reserve  Bank  of  St. 
Louis  discounted  $9.5,674,607  of  paper,  10.5  different  institutions 
utilizing  the  discount  privilege,  compared  with  103  in  1920,  using 
$122,4.58,460  of  Reserve  credit. 

At  the  advent  of  1922,  with  the  war  rapidly  becoming  a  memory 
and  readjustment  nearing  accomplishment,  operations  of  the  Fed- 
eral Reserve  Bank  of  Chicago  indicated  increasing  service  to  member 
banks,  and  indirectly  to  business  generally,  through  clearing  and 
collection,  transfer  of  funds,  and  currency  functions.  Discount  op- 
erations showed  a  marked  reduction  in  volume  of  business  from  the 
preceding  year  because  of  continued  liquidation,  and  fiscal  agency 
operations  also  decreased  somewhat,  but  in  practically  every  other 
department  of  the  bank  a  distinctly  heavier  volume  of  work  was  per- 
formed, in  most  cases  with  reduced  working  forces.  This  greater 
efficiency  resulted  in  part  at  least  from  better  facilities  in  the  new 
building,  completed  that  year. 

Of  vital  importance  to  the  welfare  of  the  Seventh  district  was 
the  liquidation  which   took  place  in  rural  sections.     This  readjust- 

Vol.  1—16  ; 


484  FINANCING  AN  EMPIRE 

ment  was  naturally  slower  in  agriculture  than  in  other  lines,  but 
increased  prices  for  farm  products  permitted  the  farmer  to  liquidate 
in  1922  to  such  an  extent  that  indications  at  the  end  of  the  year 
pointed  to  a  general  financial  recovery  much  sooner  than  seemed 
possible  at  the  year's  beginning. 

In  commercial  and  industrial  lines  in  1922  there  was  a  continued 
effort  to  work  off  large  inventories,  resulting  in  a  substantial  reduc- 
tion of  indebtedness.    A  material  improvement  resulted  in  industrial 
and    commercial    undertakings,    especially    since    large    charge-offs 
against  inventories  were  made  at  the  end  of  1921.     These  factors 
working  in  agricultural  and  industrial  communities  effected  a  gen- 
eral betterment  in  the  character  of  bank  assets.    Discount  rates,  which 
were  five  per  cent  at  the  beginning  of  1922,  were  reduced  to  four 
and  one-half  per  cent  on  all  classes  of  paper  on  March  25,  this  rate 
remaining  operative  during  the  rest  of  that  year,  and  until  a  rate 
of  four  per  cent  on  all  maturities  became  effective  on  June  14,  1924. 
The  general  business  improvement  the  country  over  was  felt  to 
the  fullest  extent  by  the  Federal  Reserve  Bank  of  St.  Louis.     In 
sharp  contrast  to  the  preceding  year,  fruit  and  vegetable  crops  in 
the  Eighth  district  were  large.    Late  fruit  and  small  crops  were  like- 
wise heavy,  but  as  a  result  of  excessive  production  and  consequent 
price  drops,  together  with  miserable  transportation  facilities,  profits 
to  producers  were  not  uniformly  satisfactory.    Car  shortages  through- 
out the  marketing  season  constituted  a  serious  handicap,  and  there 
was  also  universal  complaint  of  high  freight  rates  which,  for  long 
hauls,  absorbed  a  major  part  of  growers'  profits. 

Generally  speaking,  the  year  1922  was  one  of  plentiful  money, 
especially  during  the  closing  months,  when  financial  institutions  in 
the  Eighth  district  were  seeking  an  outlet  for  their  surplus  funds 
and  turned  for  investment  to  commercial  paper,  acceptances,  govern- 
ment securities,   and  other  bonds.     The  constant  drain  on  Federal 
Reserve  bank  resources  characteristic  of  the  preceding  years,  abated 
in  the  summer  months  of  1922  and,  with  the  effects  of  augmented 
production,  larger  commercial   needs,   and  more  universal  employ- 
ment of  labor,  commodity  values  began  to  turn  upward.     In  the  late 
summer  the  usual  demands  for  currency  and  credit  to  finance  crop 
movement  put  in  their  appearance:  these,  coupled  with  requirements 
incident  to  improvement  in  general  business  and  an  active  holiday 
trade,  resulted  in  increased  loan  activities  on  part  of  member  banks 
with  the  Federal  Reserve  bank.    Paper  to  the  amount  of  $65,791,458 


HISTORY  OF  BANKING  IN  ILLINOIS  485 

was  discounted  by  the  St.  Louis  Reserve  bank  for  108  different 
member  banks  in  Illinois,  compared  with  10.5  the  preceding  year, 
employing  $9.5,674,607  of  Federal  Reserve  credit. 

So  far  as  Federal  Reserve  bank  operations  are  concerned,  the 
year  1922  may  be  regarded  as  the  end  of  the  post-war  adjustment 
period — a  time  of  storm  and  stress  scarcely  surpassed  by  the  war 
years  themselves,  but  without  the  fever  of  patriotism  which  made 
mountains  out  of  mole  hills  in  the  solution  of  problems  connected 
with  the  successful  prosecution  of  the  war.  The  Federal  Reserve 
System  proved  its  mettle  in  handling  the  diverse  and  complex  situa- 
tion facing  it  from  the  moment  of  its  establishment  in  1914,  when 
the  two  banks  serving  Illinois  opened  within  a  few  months  after  the 
beginning  of  the  European  war.  After  our  own  entrance  into  the 
war,  there  was  thrown  upon  the  Federal  Reserve  banks  the  work 
of  financing  hostilities  on  a  scale  hitherto  undreamed  of.  We  have 
seen  how  this  was  done,  and  it  has  been  made  clear  that  without  the 
System  the  financial  phases  of  the  war  would  have  presented  in- 
superable obstacles.  The  conduct  of  the  System  during  the  trying 
period  of  deflation  served  as  a  cushion  of  credit  between  the  com- 
mercial banks  and  the  public,  instead  of  bringing  on  deflation  as  so 
frequently  charged.  The  System  lightened  the  burden  of  this  de- 
flation on  all  classes,  farmer  and  industrialist  alike.  It  is  now  left 
to  chronicle  the  salient  features  of  Federal  Reserve  banking  in  Illi- 
nois when  the  System  was  operating  under  more  or  less  normal  con- 
ditions, a  situation  which  the  press  of  economic  circumstances  since 
1914  prevented  until  1923. 


CHAPTER  XXVII 
THE  FEDERAL  RESERVE  IN  NORMAL  TIMES 

Place  of  the  System  in  times  of  normal  finance — Open  market  operations — Conditions 
in  1923,  1924  and  1925 — Evaluating  the  System  after  eleven  years — Statistical  service 
— The  System  is  approved — Increased  confidence — Stabilized  interest  rates — Process 
for  expansion  and  contraction  of  currency — Development  of  commercial  paper  and 
bankers'  acceptance  markets — Advantages  and  criticisms  of  the  plan  for  check 
collection. 

With  the  war  and  its  immediate  after-effects  a  thing  of  the  past, 
the  old  problem  of  the  proper  place  of  Federal  Reserve  banks  in  our 
financial  structure  again  came  to  the  front.  In  times  of  stress  such 
as  those  just  experienced,  little  question  was  raised  regarding  their 
jn-oper  function.  As  early  as  1914,  the  Federal  Reserve  Board  an- 
nounced the  key-note  of  the  answer  to  this  query, -in  its  Annual 
Report,  covering  operations  of  the  banks  from  their  opening  on 
November  16,  1914,  to  the  close  of  the  year: 

"The  question,  however,  naturally  suggests  itself  and  must  be 
frankly  faced:  What  is  the  proper  place  and  function  of  the  Fed- 
eral Reserve  banks  in  our  banking  and  credit  system?  On  the  one 
hand,  it  is  represented  that  they  are  merely  emergency  banks  to  be 
resorted  to  for  assistance  only  in  times  of  abnormal  stress;  while 
on  the  other  it  is  claimed  that  they  are  in  essence  simply  additional 
banks  which  should  compete  with  the  member  banks,  especially  with 
those  of  the  greatest  power.  The  function  of  a  Reserve  bank  is  not 
to  be  identified  with  either  of  these  extremes,  although  occasions  may 
arise  when  either  of  such  courses  may  be  imperative.  Its  duty  plainly 
is  not  to  await  emergencies,  but  by  anticipation  to  do  what  it  can  to 
prevent  them." 

This  problem  of  the  proper  role  to  be  played  by  Reserve  banks 
in  normal  times  is  in  effect  identical  with  that  involved  in  the  em- 
ployment of  their  surplus  funds.  The  Federal  Reserve  Act  in  Sec- 
tion 14  provides  for  open  market  operations  by  the  Federal  Reserve 

486 


*ttUtffe 


HISTORY  OF  BANKING  IN  ILLINOIS  489 

banks,  whenever  it  should  seem  desirable  to  enter  upon  them.  Inas- 
much as  the  Federal  Reserve  banks  were  designed  to  stabilize  the 
money  market  the  essence  of  the  Board's  philosophy  would  appear 
to  be  contained  in  its  first  Annual  Report,  in  the  words : 

"Normally,  therefore,  a  considerable  proportion  of  its  resources 
should  always  be  kept  invested  by  a  Reserve  bank  in  order  that  the 
release  or  withdrawal  from  active  employment  of  its  banking  funds 
may  always  exercise  a  beneficial  influence.  This  is  merely  saying 
that  to  influence  the  market  a  Reserve  bank  must  always  be  in  the 
market,  and  in  this  sense  Reserve  banks  will  be  active  banking  con- 
cerns when  once  they  have  found  their  true  position  under  the  new 
banking  conditions.     ... 

"It  will  take  time  for  the  new  banks  to  develop  the  technique  of 
control  and  skill  and  experience  in  its  application.     The  ascertain- 
ment of  the  correct  base  from  which  comprehensive  operations  should 
begin;  the  establishment  of  a  normal  level  from  which  expansions 
and  contractions  will  freely  take  place  will  have  a  most  important 
bearing  upon  the  future  development  and  success  of  the   System. 
Impatience  to  show  results  should  not  be  permitted  to  tempt  those 
in  charge  of  the  Reserve  banks  into  precipitate  and  unwise  action." 
In  1923,  the  year  in  which  the  System  had  its  first  opportunity 
to  operate  normally,  the  Federal  Reserve  Board  in  its  Annual  Report 
discussed  Federal  Reserve  discount  and  open  market  policies  at  great 
length.     It  was  pointed  out  that  open  market  operations  were  cap- 
able of  giving  effective  support  to  the  discount  policy  of  Federal 
Reserve  banks  without  an  accompanying  change  of  rates.    An  "open- 
market"  operation  consists  in  the  purchase  or  sale  in  the  general 
or  open  market  by  a  Reserve  bank  of  such  classes  of  investments 
as  it  is  authorized  by  the  Act  to  buy  and  sell,  namely,  cable  trans- 
fers, bankers'  acceptances,  bills  of  exchange,  securities  of  the  United 
States    Government,    and    certain    types    of    obligations    of    minor 
political  subdivisions.    By  a  rediscount  operation,  is  meant  the  redis- 
count by  a  member  bank  with  a  Reserve  bank  of  the  paper  of  its 
customers,  when  that  paper  conforms  with  the  eligibility  tests  set  up 
by  the  Reserve  Act.     Thus,  there  is  no  open  market  for  customers' 
paper  or  so-called  line  of  credit  loans.     Indeed,  an  important  pur- 
pose of  the  Federal  Reserve  Act  was  to  improve  the  status  of  cus- 
tomer paper  of  eligible  character. 

This  analysis  further  said  that  there  could  be  no  doubt  that  the 
Federal  Reserve  Act  looked  forward  to  the  ultimate  development 


490  FINANCING  AN  EMPIRE 

of  an  open  market  of  considerable  extent  in  the  United  States  for 
dealings  in  short-term  bills  of  the  kinds  described  in  Section  14  of 
the  Act  itself,  and  that  it  was  expected  and  desired  that  the  Federal 
Reserve  banks  enter  upon  open-market  operations  much  as  did  the 
central  banks  of  foreign  countries,  by  the  purchase  or  sale  of  securi- 
ties for  the  purpose  of  exerting  an  influence  on  the  state  and  the 
course  of  credit. 

During  the  earlier  years  of  the  System's  operation,  the  open- 
market  dealings  of  the  twelve  banks  far  exceeded  the  volume  of  their 
rediscounts  for  member  banks.  This  situation  arose  from  the  easy 
money  conditions  then  prevailing,  the  large  influx  of  gold  from 
Europe,  and  the  strong  reserve  position  of  member  banks.  All  this 
made  it  possible  for  member  banks  to  care  for  the  greatly  increased 
needs  of  their  customers  without  extensive  recourse  to  rediscounting 
with  the  Federal  Reserve  banks.  Thus  the  Reserve  banks  entered 
upon  the  open  market  at  this  time  partly  to  secure  earnings  on  in- 
vestments from  which  their  operating  expenses  could  be  defrayed, 
but  largely  also  for  the  purpose  of  building  up  a  broader  discount 
market  in  the  United  States  by  encouraging  the  use  of  bankers'  ac- 
ceptances and  by  freely  dealing  in  them. 

St.  Louis  in  1922  increased  its  purchases  of  acceptances  and  gov- 
ernment securities  in  the  open  market  because  of  the  decline  in 
borrowings  by  member  banks,  holding  on  December  31,  1922,  pur- 
chased bills  to  the  amount  of  $13,028,000  as  compared  with  only 
$218,000  on  the  corresponding  date  in  1921.  A  total  of  $33,736,031 
of  bills  was  purchased  in  the  open  market  during  1922,  of  which 
nearly  all  ($32,441,031)  were  bankers'  acceptances,  and  only  $1,295,- 
000  bills  to  furnish  dollar  exchange.  A  total  of  $145,239,550  of 
government  securities  was  acquired  by  the  St.  Louis  bank  in  1922, 
an  increase  of  $99,622,550  over  the  amount  bought  in  the  preceding 
year.  In  1923,  however,  on  account  of  the  increased  demand  for 
accommodations  from  member  banks,  the  pendulum  swung  the  other 
way  and  open  market  operations  were  considerably  less  extensive 
than  in  1922,  purchases  of  bankers'  acceptances  aggregating  $35,- 
011,449,  compared  with  $46,840,682.  The  majority  of  acceptances 
were  bought  during  the  early  months  of  the  year  and  were  of  short 
maturities,  so  that  bill  holdings  steadily  declined  to  meet  the  increase 
in  discounts  for  member  banks.  Purchases  of  government  securities 
amounted  to  $85,257,200  as  compared  with  $145,239,550  in  1922. 
Special  certificates  of  indebtedness,  running  for  a  day  or  so,  to  cover 


HISTORY  OF  BANKING  IN  ILLINOIS  491 

temporary  advances,  comprised  the  majority  of  this  amount.  The 
year  1924  saw  another  marked  increase  in  the  volume  of  open-mar- 
ket operations,  and  acceptances  amounting  to  $50,731,975  were  pur- 
chased for  the  bank's  own  account,  as  compared  with  $35,011,449  in 
1923.  Xo  bills  were  purchased  from  the  portfolios  of  other  Federal 
Reserve  banks  in  1924,  whereas  during  the  preceding  year  140  bills 
representing  $2,431,900  were  bought. 

In  Chicago  the  trend  of  open-market  operations  was  substan- 
tially the  same  as  that  of  St.  Louis,  except  that  in  1923  the  volume 
of  bankers'  acceptances  showed  a  slight  increase  over  1922;  bonds 
and  note  purchases  as  well  as  certificates  of  indebtedness,  however, 
declined  from  the  preceding  year,  though  less  markedly  than  was 
shown  by  the  figures  for  the  Eighth  district.  Less  activity  in  the 
matter  of  investments  occurred  in  Chicago  in  1924,  whereas  St.  Louis 
reported  an  increase. 

In  general,  the  operations  of  the  Federal  Reserve  Bank  of  Chi- 
cago in  1923  reflected  the  continued  expansion  of  production  and 
trade  in  the  middle  west.  Borrowings  of  member  banks  in  that  year 
averaged  higher  but  increased  to  a  lesser  degree  than  production  and 
trade.  An  important  development  during  the  year  was  the  con- 
tinued progress  in  agricultural  sections  toward  the  liquidation  of 
slow  loans,  a  movement  under  way  at  the  close  of  the  preceding  year. 
Departments  of  the  Reserve  bank  as  a  whole  carried  an  increased 
volume  of  work,  exercising  their  functions,  however,  with  no  increase 
in  personnel.  This  higher  average  of  loans  in  1923  was  directly 
traceable  to  financial  operations  in  larger  centers  and  to  the  increas- 
ing commercial  demand.  The  requirements  of  country  banks  stead- 
ily decreased  from  the  first  of  the  year  until  the  middle  of  Septem- 
ber when  seasonal  needs  reversed  the  trend.  Generally  speaking, 
crops  were  good,  and  corn,  hogs,  and  cattle  brought  fair  prices. 
Improvement  in  volume  and  price  of  dairy  products  was  a  material 
factor  in  the  betterment  of  the  agricultural  situation  in  some  sec- 
tions of  the  district.  Loans  in  industrial  and  commercial  centers 
showed  a  steadily  increasing  trend  throughout  the  year. 

Operations  the  following  year  (1924)  were  influenced  by  the  im- 
proved position  of  member  banks  in  the  district,  which  enabled  them 
to  meet  a  large  proportion  of  the  demand  for  accommodation  from 
their  customers  with  lessened  recourse  to  the  Federal  Reserve  bank. 
Business  and  industry  were  on  a  generally  lower  level  than  during 
the  preceding  year;  toward  the  close,  however,  better  sentiment  on 


492  FINANCING  AN  EMPIRE 

all  sides  gave  rise  to  a  slight  acceleration  of  enterprise  in  many  lines. 
Agriculture  in  the  greater  part  of  the  district  received  a  severe  blow 
in  the  poor  corn  crop,  a  loss  partially  offset  by  better  yields  and 
prices  for  other  grains  and  crops,  but  constituting  a  distinct  handi- 
cap to  agricultural  recovery.  Because  of  favorable  market  condi- 
tions for  hogs  and  carry-over  of  some  crops  from  the  preceding  year, 
however,  many  banks  were  enabled  to  pay  off  their  indebtedness  en- 
tirely and  others  to  make  substantial  reductions.  During  the  clos- 
ing weeks  of  1924  liquidation  of  agricultural  credits  was  less  rapid, 
the  result  of  heavy  shipments  early  in  the  fall  of  light-weight  hogs 
because  of  lack  of  feed  as  well  as  the  inferior  corn  crop.  Loan  and 
discount  operations  during  the  year  reflected  continued  liquidation 
in  commercial,  industrial,  and  agricultural  lines;  easier  conditions 
in  commerce  and  industry  resulted  in  an  increase  of  deposits  in  mem- 
ber banks  and  a  slackening  of  demand  for  loans  from  the  Federal 
Reserve  bank,  which  enabled  the  banks  in  the  larger  centers  to  elim- 
inate their  borrowings  entirely.  The  easing  tendency  in  the  money 
market  was  shown  by  the  reduction  of  the  bank's  rediscount  rate 
from  four  and  one-half  to  four  per  cent. 

The  year  1925  witnessed  a  generally  expanding  scale  of  indus- 
trial activity,  an  almost  unprecedented  turnover  in  the  stock  mar- 
ket, and  continued  improvement  in  agricultural  sections  of  the  dis- 
trict— conditions  resulting  in  a  gradually  rising  level  of  loans  to 
members,  and  a  receding  volume  of  investment  activities. 

In  evaluating  the  work  of  the  Federal  Reserve  System  after 
eleven  years  of  service,  it  must  be  remembered  that  only  three  of 
those  years,  1923,  1924,  and  192.5,  can  be  termed  normal.  The 
other  eight  Mere  divided  between  the  abnormalities  of  wartime  and 
the  even  greater  ones,  in  an  economic  way,  of  the  period  of  readjust- 
ment from  1919  to  1923. 

Prior  to  our  entry  into  the  Avar,  the  Federal  Reserve  banks  had 
no  opportunity  to  make  their  introduction  into  our  banking  ma- 
chinery a  particularly  vital  matter.  They  had  been  helpful  in  bring- 
ing the  country  back  to  a  more  or  less  settled  condition  after  the 
upheaval  of  the  summer  of  1914;  nevertheless,  they  were  on  trial, 
and  the  banking  world  in  general  was  waiting  to  be  shown  convincing 
justification  for  the  Federal  Reserve  Act. 

A  system  such  as  the  Federal  Reserve,  comprised  of  twelve  more 
or  less  separate  entities,  co-ordinated  and  supervised  by  a  central 
authority,  differs  in  many  respects  from  the  central  banks  of  issue 


HISTORY  OF  BANKING  IN  ILLINOIS  493 

of  countries  like  England  or  Germany.  The  economic  and  banking 
problems  of  New  York,  for  example,  are  quite  different  from  those 
of  the  middle  west,  and  Minneapolis  has  a  far  different  set  of  prob- 
lems to  meet  than  has  the  Federal  Reserve  Bank  of  Dallas.  It  was 
this  diversity  of  interests  in  the  several  sections  of  the  United  States 
that  prompted  the  framers  of  the  Federal  Reserve  Act  to  organize 
the  system  on  the  so-called  regional  basis,  rather  than  along  the  lines 
of  one  central  institution. 

In  the  early  years  of  the  Federal  Reserve  System,  the  question  of 
formulating  a  discount  policy  was  not  nearly  so  difficult  to  answer 
as  later  on,  when  business  under  stimulation  of  European  war  buy- 
ing began  to  draw  more  heavily  on  the  Reserve  banks.  This  expan- 
sion of  the  use  of  credit  necessarily  called  for  a  careful  study  of  the 
needs  of  the  country,  with  a  view  to  adopting  a  discount  policy  that 
would  meet  immediate  requirements  and  safeguard  against  future 
contingencies,  such  as  the  possibility  of  our  being  drawn  into  the 
European  struggles.  Statistical  data  on  current  business,  whether 
of  production,  distribution,  or  consumption,  was  decidedly  unsatis- 
factory, and  a  great  deal  of  it  was  not  comparable — a  mere  mass  of 
unrelated  figures. 

The  Federal  Reserve  Board  struggled  with  these  data,  as  did  some 
of  the  individual  banks,  and  finally  came  to  the  decision  that  if  it 
were  to  attempt  anything  like  a  scientific  study  of  the  general  credit 
situation  in  the  country,  with  a  view  to  determining  a  far-sighted 
and  comprehensive  discount  policy,  a  reporting  service  must  be  or- 
ganized. Steps  were  taken  to  map  out  such  a  service  and  an  exten- 
sive schedule  of  statistical  data  was  laid  out. 

The  development  of  this  service  in  the  individual  banks  was  first 
undertaken  in  the  Federal  Reserve  Bank  of  Chicago.  This  was 
started  in  1918  and  was  followed  early  the  next  year  by  the  New 
York  bank.  Through  the  cooperation  of  producers  and  distributors, 
it  was  attempted  to  bring  together  vital  data  relative  to  those  basic 
activities  which  involve  the  use  of  large  volumes  of  credit.  Pri- 
marily, these  data  were  compiled  for  the  purpose  of  advising  the 
Federal  Reserve  Board  at  Washington  of  changes  and  conditions. 
The  Board,  however,  impressed  with  their  worth  as  a  stabilizing  in- 
fluence in  the  business  w^orld,  decided  that  each  one  of  the  banks, 
after  the  features  of  various  reports  had  been  co-ordinated,  should 
publish  and  distribute  reviews  to  its  member  banks  and  to  those  busi- 
ness men  who  had  cooperated  by  furnishing  statistical  data. 


494  FINANCING  AN  EMPIRE 

Thereafter  each  department  engaged  in  this  business  reporting 
service  concentrated  its  efforts  on  a  close  study  of  agricultural,  in- 
dustrial, and  financial  conditions  in  its  own  district.  This  was  soon 
worked  out  in  the  most  direct  manner  possible,  that  is,  by  monthly 
reports  and  statistics  supplied  by  the  business  men  themselves.  These 
reports,  collected  and  tabulated  in  each  of  the  districts,  still  furnish 
a  timely  and  definite  mass  of  information,  much  of  it  comprising 
data  of  a  confidential  character  which  are  used  only  when  combined 
with  other  similar  data.  Through  this  service  there  comes  from 
farmers  and  business  men  of  the  country  information  which  guides 
the  Federal  Reserve  banks  in  serving  the  credit  needs  of  the  nation, 
and  of  such  great  import  has  this  become  as  to  necessitate  the  em- 
ployment of  a  staff  of  analysts  in  each  of  the  Federal  Reserve  banks. 

Another  phase  of  the  work  of  the  Divisions  of  Research  and  Sta- 
tistics is  the  collection  each  week  of  a  condensed  statement  of  condi- 
tion from  a  list  of  selected  member  banks.  In  the  Seventh  Federal 
Reserve  district,  these  data  come  from  one  hundred  member  banks 
which  represent  seventy-one  per  cent  of  member  bank  resources  and 
more  than  forty  per  cent  of  the  total  banking  resources  of  the  dis- 
trict. To  make  the  data  representative,  they  are  compiled  in  three 
groups — member  banks  of  Chicago,  the  Federal  Reserve  city;  those 
of  Detroit,  the  branch  city;  and  other  selected  cities,  including  all 
the  Reserve  cities.  Because  this  work  is  consistently  carried  out  in 
all  districts  it  gives  the  Board  within  a  week  reliable  banking  sta- 
tistics of  the  country  as  a  whole. 

The  Division  of  Research  and  Statistics  of  the  Federal  Reserve 
Bank  of  Chicago  receives  each  month  first-hand  data  from  about 
1,500  different  firms  and  associations  in  the  Seventh  district,  cover- 
ing the  majority  of  lines  of  importance  in  the  district,  and 
some  of  national  scope.  Included  in  the  current  statistics  of  this 
bank  are  shipments  and  sales  of  meat  packing,  automobiles,  agricul- 
ture, dairy  products,  implements,  furniture,  flour  milling,  iron  and 
steel,  merchandising,  wholesale,  retail,  and  chain  store,  as  well  as 
data  on  employment  and  wages.  More  than  eighty  different  items 
are  carried  as  index  numbers  based  on  the  latest  returns  from  re- 
porting sources.  These  furnish  the  business  and  banking  interests 
of  the  middle  west,  and  especially  of  the  Seventh  district,  with  ac- 
curate statistics. 

As  already  pointed  out,  the  Federal  Reserve  System  has  been 
the  target  for  all  manner  of  unjust  criticism.     Although  even  the 


HISTORY  OF  BANKING  IN  ILLINOIS  49"> 

warmest  friend  of  the  System  cannot  claim  perfection  for  it,  nor 
the  exercise  always  of  what  might  be  good  judgment  in  the  light  of 
later  experience,  it  must  be  borne  in  mind  that  the  System  has  had 
to  solve  problems  with  no  precedent  either  at  home  or  abroad.  The 
mere  solution  of  them,  whether  or  not  in  the  best  manner  possible, 
constitutes  in  itself  a  service  to  business  and  banking  in  establishing 
precedents  upon  which  to  base  future  actions.  It  is  scarcely  fair  to 
expect  perfect  efficiency  from  the  directors  and  officers  of  twelve 
banks  of  a  system  created  but  little  more  than  a  decade  ago. 

The  present  attitude  of  banking  sentiment  in  Chicago  toward 
the  System  is  well  expressed  in  a  speech  of  Melvin  A.  Traylor,  Pres- 
ident of  the  First  Xational  Bank  of  Chicago,  given  before  the  Mon- 
tana Bankers'  Convention,  at  Glacier  Xational  Park,  July  11,  192.5. 
The  earlier  portions  of  the  address  were  confined  to  a  discussion  of 
the  problems  of  the  live  stock  industry  since  1920,  particularly  in 
the  matter  of  export,  because  of  shifting  exchange  values: 

"But  now  the  recent  action  of  Great  Britain  in  declaring  that  it 
will  again  redeem  its  paper  money  in  gold  means  that  British  buyers 
of  American  products  can  pay  for  them  with  money  which  has  a 
fixed  value,  money  which  is  accepted  the  world  over  at  its  face  value 
in  gold.  With  the  return  of  Great  Britain  to  the  gold  standard,  a 
majority  of  the  countries  of  Europe  now  have  paper  currencies  equal 
to  gold. 

"American  bankers  have  assisted  in  the  British  return  to  the 
gold  standard  by  giving  a  $100,000,000  credit  to  the  British  gov- 
ernment. But  more  important  than  this  was  the  action  of  your  Fed- 
eral Reserve  bank  and  the  other  eleven  Reserve  banks  in  granting 
the  request  of  the  Bank  of  England  for  material  cooperation.  They 
have,  as  you  know,  placed  $200,000,000  in  gold  at  the  disposal  of 
the  Bank  of  England  for  two  years,  to  be  used  by  it,  if  necessary,  in 
maintaining  the  gold  standard.  I  have  no  doubt  that  the  readiness 
of  the  Reserve  banks  thus  to  cooperate  with  the  Bank  of  England 
was  an  important  influence  in  the  willingness  of  the  British  people 
to  take  this  all-important  step  for  the  preservation  of  the  gold  stand- 
ard. 

'This  action  of  the  Reserve  banks  was  a  most  constructive  step 
in  aid  of  American  farmers  and  producers  who  will  benefit  greatly 
by  the  removal  of  this  element  of  uncertainty  from  their  export 
transactions. 

"If  all  the  sins  of  omission  and  commission  charged  against  the 


400  FINANCING  AN  EMPIRE 

Federal  Reserve  System  by  bankers,  business  men,  live-stock  men, 
or  political  blatherskites  in  the  last  five  years  were  true,  and  prac- 
tically none  of  them  are,  the  service  rendered  the  commerce  and  in- 
dustry of  the  country  and  of  the  world  by  the  System  in  connection 
with  the  restoration  of  the  gold  standard  in  so  large  a  part  of  the 
world  would  far  outweigh  any  mistakes  that  those  in  charge  of  the 
System  may  have  made;  and  no  banker,  business  man,  or  farmer 
should  permit  any  self-serving  declaration  by  favor-seeking  dema- 
gogue to  swerve  him  from  a  determination  to  see  that  the  System 
is  maintained  and  preserved  for  the  future  welfare  of  the  business 
of  the  country. 

"Not  alone  in  connection  with  this  matter,  however,  has  the  Fed- 
eral Reserve  System  been  of  service  to  our  people.  Notwithstanding 
we  hear  frequently  these  days  expressions  of  dissatisfaction  with 
business  conditions,  we  know  very  well  that  fundamentally  condi- 
tions are  very  sound  and  that  we  are  actually  doing  a  very  large 
volume  of  business,  no  little  part  of  which  is  due  to  the  equalizing 
and  stabilizing  effect  exercised  by  the  Federal  Reserve  System  on 
the  credits  of  the  country.  Throughout  all  the  stress  of  the  last  five 
years  there  have  been  no  times  of  either  stringency  or  plethora  of 
bank  credit.  Rates  have  run  along  on  a  rather  level  keel  and  in  my 
judgment  have  had  much  to  do  with  the  stable  volume  of  business 
which  we  have  enjoyed,  and  which  is  quite  contrary  to  the  old  ex- 
perience of  the  aftermath  of  panics,  when  the  first  effect  has  been 
very  cheap  credit  and  secondary  inflation,  with  its  accompaniment  of 
tight  money  again  and  a  further  depression. 

"Whether  the  new  method  of  conducting  the  business  of  the 
country  is  to  be  permanent  or  not,  one  cannot  very  well  guess,  but 
it  is  very  certain  that  at  the  present  time  the  so-called  hand-to-mouth 
buying  is  very  soundly  entrenched;  that  it  is  sane  and  makes  for 
steadier  and  more  wholesome  conditions,  seems  to  me  obvious.  With 
greatly  expanded  facilities  for  manufacture,  with  the  best  transpor- 
tation system  in  the  world,  and  with  assured  credit  facilities  for 
handling  the  needs  of  business,  it  would  seem  unreasonable  that  we 
should  in  the  near  future  resort  to  the  old  method  of  speculation  such 
as  is  inseparably  tied  up  with  large  future  commitments  in  anticipa- 
tion of  buying  demands.  If  we  will  preserve  our  transportation 
system  in  its  present  state  of  efficiency,  together  with  a  credit  struc- 
ture as  onlv  the  Federal  Reserve  System  can  guarantee,  I  feel  we 


HISTORY  OF  BANKING  IN  ILLINOIS  497 

need  have  no  apprehension,  but  on  the  contrary  sound  optimism  for 
the  future." 

Similar  approval  by  the  great  majority  of  bankers  in  the  United 
States  was  amply  indicated  at  the  annual  convention  of  the  Amer- 
ican Bankers'  Association  of  1925,  at  which  the  question  of  the  per- 
petuation of  the  Federal  Reserve  System  held  one  of  the  main  points 
of  interest  on  the  program.  Expressions  given  at  that  time 
indicated  that  banking  opinion  was  all  but  unanimous  in  the 
sentiment  that  everything  possible  should  be  done  to  insure 
the  permanence  of  the  System  as  a  fixture  in  the  banking 
structure  of  the  nation.  William  E.  Knox,  President  of  the  Bowery 
Savings  Bank  of  ]\Tew  York,  who  was  then  President  of  the  Amer- 
ican Bankers'  Association,  in  his  address  before  the  convention,  said 
in  part: 

"It  is  essential  to  the  whole  economic  fabric  of  the  country,  in- 
dustrial and  commercial  as  well  as  financial.  Our  single  aim  and 
purpose  should  be  to  support  the  Federal  Reserve  System,  to  see 
that  the  charter  is  extended  for  a  long  time,  or  indeterminately,  and 
only  to  be  terminated  by  the  action  of  Congress,  and  to  do  all  in 
our  power  to  perpetuate  the  System." 

Other  speakers  praised  the  System  by  recounting  how  it  had  be- 
gun existence  at  a  time  when  it  was  tested  by  war  conditions  of  ut- 
most rigor  and  3ret  it  met  every  necessity  and  saved  the  country  from 
calamities  which,  without  the  Federal  Reserve  System,  must  un- 
doubtedly have  befallen. 

Both  at  this  convention  and  elsewhere,  it  has  been  frequently 
pointed  out  that  during  the  first  ten  years  of  the  operation  of  the 
System  there  was  developed  a  confidence  in  the  future  never  before 
possible  to  American  business.  If  one  were  to  study  a  diagram  of 
business  fluctuations  during  the  twenty-five  years  prior  to  the  estab- 
lishment of  the  Federal  Reserve  System  and  for  the  first  ten  years 
of  its  existence,  one  would  find  there  the  panic  of  1893,  the  Free 
Silver  Panic  of  189G,  the  period  of  credit  stringency  of  1900,  the 
Rich  Man's  Panic  of  1903,  the  panic  of  1907;  and  then  in  1914 
there  came  the  Federal  Reserve  System  and  there  were  no  further 
money  panics.  Thus  is  made  plain  the  ability  of  the  Federal  Reserve 
System  to  serve  its  purpose  of  being  a  system  of  banks  for  banks, 
to  help  bank  customers — the  business  men,  farmers,  working  men, 
manufacturers — all  the  people  of  the  nation. 

The  same  machinery  which  creates  confidence  on  the  part  of  the 


498  FINANCING  AX  EMPIRE 

business  public  and  prevents  money  panics,  also  stabilizes  interest 
rates.  After  all,  interest  rates  are  merely  the  current  rental  rates 
for  money  and  when  that  commodity  can  be  neither  hoarded  nor 
released  to  the  point  where  it  can  long  remain  either  too  plentiful 
or  scarce,  it  naturally  follows  that  its  rental  cost  must  follow  a  com- 
paratively steady,  non-fluctuating  trend.  While  the  Federal  Re- 
serve System  cannot  control  these  rates  by  an  actual  increase  or  de- 
crease in  the  accumulation  of  capital,  it  has  supplied  a  credit  elas- 
ticity  which  enables  banks  evervwhere,  under  all  conditions,  to  ad- 
just  their  reserve  positions  accordingly. 

Before  the  establishment  of  the  Federal  Reserve  System  the  note 
currency  of  the  country  could  not  be  expanded  and  contracted  in 
accordance  with  seasonal  needs.  Federal  Reserve  notes,  however, 
give  this  much  desired  quality,  nicely  adjusted  to  commercial  and 
other  needs,  because  they  are  issued  on  a  security  which  consists  in 
part  of  borrowers'  paper,  and  are  withdrawn  from  circulation  as 
rapidly  as  such  paper  is  called  in  for  payment.  This  paper,  backing 
the  notes  of  the  Federal  Reserve  Bank,  may  be  that  of  farmers, 
manufacturers,  or  merchants.  It  may  represent  products  in  the 
process  of  production  or  marketing,  or  goods  in  movement  to  market, 
on  hand,  or  in  the  process  of  export  or  import.  It  naturally  follows 
that  with  this  type  of  security,  when  the  volume  of  business  de- 
creases, borrowers  return  currency  to  their  banks  in  payment  of 
their  loans  and  the  banks,  in  turn,  ship  that  same  currency  to  the 
Federal  Reserve  banks  to  liquidate  their  borrowings.  The  Federal 
Reserve  banks  thereupon  retire  from  circulation  an  equivalent 
amount  in  Federal  Reserve  notes,  thus  keeping  the  amount  of  money 
in  circulation  in  adjustment  with  the  requirements  of  the  time  and 
locality.  It  is  reported  that  in  1920  Federal  Reserve  notes  made  up 
about  seventy  per  cent  of  the  money  in  circulation  in  the  United 
States,  and  in  192o  they  were  about  one-half. 

Because  of  the  ability  to  circulate  this  form  of  currency  with  a 
security  partly  of  gold  and  partly  of  commercial  paper,  America 
was,  for  the  first  time  in  her  history,  able  to  pay  war  wages  and  war 
prices  with  a  note  issue  always  redeemable  in  gold  at  par. 

Because  of  the  relation  of  Federal  Reserve  notes  to  commercial 
paper,  the  System  has  created  a  broader  discount  market  for  com- 
mercial paper  than  this  country  ever  before  had.  Prior  to  the  com- 
ing of  the  Federal  Reserve  System,  the  great  bulk  of  commercial 
paper  in  America  was  essentially  local  in  nature  with  little  or  no 


HISTORY  OF  BANKING  IN  ILLINOIS  499 

market  outside  of  the  community  in  which  it  was  created.  Similarly, 
the  System  has  made  possible  the  creation  of  a  bankers'  acceptance 
market  corresponding  to  the  London  bill  market.  Under  the  en- 
couragement of  the  Federal  Reserve  banks  this  market  developed 
so  rapidly  that  in  1925  there  were  some  eight  hundred  million  dollars 
of  bankers'  bills  reported  outstanding,  a  volume  not  far  short  of  the 
amount  handled  in  the  commercial  paper  market.  The  bankers'  bill 
market  is  important  in  that  it  is  a  "two-way"  market.  Dealers  not 
only  sell  such  bills  to  banks  and  other  investors  but  they  buy  them 
from  the  same  customers,  and  thus  the  holder  of  a  bankers'  bill  can 
always  get  his  money  promptly  either  by  selling  to  a  dealer  or  to 
a  Federal  Reserve  bank.  Many  commercial  banks  constantly  carry 
such  bills  in  their  portfolios  to  be  liquidated  at  a  moment  of  sudden 
need.  Prior  to  the  opening  of  the  Federal  Reserve  banks,  bankers' 
acceptances  were  not  created  by  the  banks  of  America.  The  privi- 
lege of  loaning  credit  as  distinguished  from  loaning  funds  was  first 
inaugurated  by  the  Federal  Reserve  banks.  But,  in  spite  of  this 
fact,  the  banks  of  the  Federal  Reserve  System  have  not  formed  a 
primary  market  for  such  paper. 

Another  respect  in  which  the  Federal  Reserve  System  has  had  a 
direct  influence  on  the  business  of  the  country  is  through  its  system 
for  check  collection.  Prior  to  the  installation  of  this  plan,  it  was 
customary  for  invoices  to  call  for  settlement  in  funds  on  a  certain 
city,  making  it  necessary  for  the  man  who  purchased  supplies  in  vari- 
ous parts  of  the  country  to  go  to  his  bank  and  buy  drafts  on  the  sev- 
eral places  demanded  by  his  creditors.  With  the  installation  of  the 
Federal  Reserve  check  collection  system,  however,  it  is  possible  for 
checks  on  the  smallest  bank  in  the  smallest  and  most  remote  town  in 
the  country  to  be  acceptable  anywhere.  This  single  phase  of  the 
Federal  Reserve  System  has  done  for  American  finance  a  thing 
comparable  to  the  establishing  of  a  national  currency. 

Something  of  the  early  struggles  for  existence  of  the  check  col- 
lection system  have  been  described  elsewhere  in  this  volume.  How- 
ever, it  may  be  well  to  mention  here  that,  even  at  this  writing,  the 
attempt  to  bring  about  nation-wide  par  clearance  and  collection  of 
checks  through  Federal  Reserve  banks  falls  short  of  satisfying  com- 
pletely those  on  either  side  of  the  controversy. 

Perhaps  it  would  be  more  fair  to  describe  that  which  the  Federal 
Reserve  banks  seek  as  "par  remittance"  instead  of  "par  clearance," 
for  the  Svstem  does  not  ask  a  commercial  bank  to  handle  checks  at 


f)00  FINANCING  AN  EMPIRE 

any  expense  to  itself  without  being  reimbursed  for  that  cost.  It 
does  ask,  however,  that  no  bank  make  a  charge  for  paying  a  check 
drawn  upon  itself,  just  because  that  check  is  presented  through  the 
mails  or  through  some  other  bank.  It  has  long  been  the  custom  for 
all  banks  to  pay  checks  on  themselves  in  cash  at  par  when  presented 
over  their  own  counters.  There  may  have  been  a  time  when  to  do 
otherwise  with  the  same  checks  when  presented  by  mail  was  war- 
ranted. That  practice,  however,  in  the  opinion  of  the  majority  of 
economists,  has  no  justification  in  this  day  and  age  when,  as  a  matter 
of  fact,  it  is  less  expensive  for  a  bank  to  pay  such  checks  by  draft  on 
an  interest-bearing  account  in  a  city  bank,  than  to  pay  non-interest- 
bearing  cash  over  the  counter. 

After  many  difficulties,  the  Federal  Reserve  Board  changed  the 
ruling  in  this  regard  to  require  that  no  Federal  Reserve  bank  should 
receive  on  deposit  or  for  collection  any  check  drawn  on  any  non- 
member  bank  which  could  not  be  collected  at  par  in  acceptable  funds 
by  the  Federal  Reserve  bank  of  the  district  in  which  that  non-mem- 
ber bank  was  located.  This  ruling  went  into  effect  in  May,  1924. 
Thereafter  there  followed  a  number  of  futile  attempts  to  secure  a 
national  bank  which  would  bring  suit  against  some  one  of  the  Fed- 
eral Reserve  banks  for  the  purpose  of  regaining  the  right  to  deduct 
exchange  on  checks.  Since,  however,  the  plan  of  par  collection  has 
long  been  in  operation  and  approved  by  the  majority  of  leading 
bankers,  its  opponents  are  gradually  sinking  into  oblivion  and  in 
time  par  remittance  will,  in  all  probability,  become  an  established 
fact. 

Whether  or  not  the  Federal  Reserve  banks  themselves  will  go 
much  further  with  a  campaign  for  the  adoption  of  nation-wide  par 
remittance  is  open  to  doubt.  It  is  hardly  to  be  expected  that  these 
banks  are  in  a  position  to  carry  on  the  struggle  much  longer.  For 
them  to  do  so  would  probably  incur  additional  hostility  in  sections 
of  the  country  which  already  regard  the  Federal  Reserve  System 
with  disfavor.  It  would  not,  therefore,  be  advisable  to  do  anything 
which  might  further  reduce  popularity  of  a  System  which  has  proved 
itself  to  be  a  real  asset  to  the  business  of  the  United  States.  Hence- 
forth, the  problem  of  par  remittance  should  be  up  to  the  commercial 
and  business  interests  of  the  nation.  Unless  these  see  fit  to  assume 
the  burden,  the  day  of  universal  par  remittance  may  be  postponed 
into  a  far  distant  future,  for  those  banks  which  are  opposed  to  the 
plan  will  probably  continue  their  objections  so  long  as  they  remain 


HISTORY  OF  BANKING  IN  ILLINOIS  501 

sufficiently  in  the  minority  to  be  able  to  make  the  major  portion  of 
their  collections  at  par  while  their  remittances  go  at  a  discount.  Uni- 
versal exchange  charges,  on  the  other  hand,  would  eliminate  this 
profit  for  banks;  and  it  must  be  remembered  that  it  would  also  con- 
stitute an  unhealthy  tax  on  business. 

A  careful  review  of  the  points  on  which  opposition  to  the  Fed- 
eral Reserve  System  has  arisen  leads  one  inevitably  to  the  conclusion 
that  while  the  System  is  far  from  perfect  in  all  its  details,  its  funda- 
mentals are  sound  and  of  tremendous  value  to  American  industry, 
commerce,  and  finance.  Such  opposition  as  does  exist  is  due  in  large 
part  to  the  fact  that  the  nation's  education  toward  an  appreciation 
of  the  benefits  of  a  central  banking  system  has  not  yet  even  begun. 
This  is  plainly  indicated  in  the  fact  that  a  majority  of  the  altera- 
tions and  amendments  constantly  being  suggested  for  the  System 
are  either  provided  for  in  the  Act  as  it  already  exists,  are  not  justi- 
fiable, all  things  considered,  or  if  adopted  would  work  actual  harm 
to  banking  and  other  interests  of  the  country. 


CHAPTER  XXVIII 
CHICAGO    CLEARING   HOUSE    ASSOCIATION 

Organization  of  the  Chicago  Clearing  House,  1865 — Custom  of  trading  balances — Clear- 
ing after  the  fire  of  1871 — Results  of  the  Panic  of  1873— Incorporation  in  1882 — Use  of 
Clearing  House  Certificates  avoided  in  1873  and  1893 — Reorganized  as  a  voluntary 
association,  1901 — Men  important  in  Clearing  house  affairs — Clearing  House 
examination  first  installed  in  Chicago — Certificates  used  in  1907 — The  Great  War — 
Early  clearing — Growth  of  the  Association. 

The  Chicago  Clearing  House  Association  started  business  on  April 
6,  1865.  There  was  nothing  particularly  unique  in  its  original  un- 
dertakings, for  the  association  was  modeled  on  lines  practically  iden- 
tical with  those  of  similar  institutions  already  well  established  in  the 
east.  Prior  to  this,  on  March  3,  1865,  there  had  been  held  a  meet- 
ing of  the  city's  most  prominent  bankers,  at  which  all  arrangements 
were  made  for  organizing  the  clearing  house  and  where  there  were 
appointed  as  incorporators,  J.  H.  Ellis  of  the  Second  National  Bank, 
J.  H.  Bowen  of  the  Third  National,  Josiah  Lombard  of  the  Fifth 
National,  J.  Young  Scammon  of  the  Mechanics  National.  S.  B. 
Sturges  of  the  Merchants  National,  and  P.  H.  Westfall  of  the  Com- 
mercial National. 

The  original  constitution,  the  first  of  three,  like  all  those  fol- 
lowing, provided  for  a  clearing  house  committee  of  five  bankers. 
Lyman  Gage,  who  was  then  president  of  the  Merchants  Savings, 
Loan  and  Trust  Company,  was  made  chairman  of  the  first  commit- 
tee and  the  men  who  served  with  him  were  John  De  Koven  of  the 
Merchants  National  Bank,  Ira  Holmes  of  the  Third  National,  E. 

E.  Braisted  of  the  First  National,  and  E.  I.  Tinkham  of  the  Sec- 
ond National  Bank.  Mr.  Gage  was  also  elected  manager  of  the 
clearing  house  at  a  salary  of  three  thousand  dollars  a  year,  but  never 
served  in  this  capacity  as  he  offered  his  resignation  within  a  few 
days,  and  on  April  8  G.  A.  Ives  was  appointed  to  take  his  place.    W. 

F.  Coolbaugh  of  the  Union  National  Bank  was  the  first  president 
and  Josiah  Lombard  of  the  Fifth  National  served  as  first  vice-pres- 
ident. 

502 


HISTORY  OF  BANKING  IN  ILLINOIS  503 

The  first  rooms  occupied  by  the  association  were  in  the  Mechanics 
National  Bank  building  on  the  floor  above  the  banking  rooms. 
These  were  secured  at  an  annual  rental  of  five  hundred  dollars  and 
the  association  was  obliged  to  provide  its  own  heating  equipment. 
It  is  interesting  to  read  the  treasurer's  reports  of  those  early  days 
in  which  much  comment  is  made  on  the  size  of  the  coal  pile  and  the 
number  of  hods  and  shovels  that  were  needed.  In  his  report  for 
the  vear  1866  the  treasurer  added  a  note  saving  "I  have  on  baud 
and  paid  for,  six  months'  supply  of  blanks,  revenue  stamps  for  the 
present  quarter,  and  sufficient  coal  for  the  winter." 

From  the  very  beginning  the  association  discriminated  in  its  mem- 
bership lists.  Although  there  was  no  specific  capital  requirement  to 
be  attained  before  a  bank  might  become  a  member,  as  early  as  April 
8,  186,5,  only  two  days  after  the  first  clearings  had  taken  place,  two 
private  bankers  were  refused  membership.  Within  a  short  time  the 
application  of  one  of  these  was  reconsidered  and  the  president  of 
that  bank  eventually  became  one  of  the  association's  strongest  advo- 
cates of  rulings  to  put  private  banks  under  the  same  rigorous  re- 
quirements as  were  demanded  of  national  institutions.  It  will  be 
remembered  that  there  were  no  state  banks  in  Chicago  in  1865. 

At  the  time  of  this  same  meeting  the  organization  had  hopes  of 
becoming  so  affluent  as  to  require  provision  for  the  storage  of  money, 
and  so  space  was  rented  in  the  vaults  of  the  Merchants  Savings, 
Loan,  and  Trust  Company  and  authority  was  given  "to  purchase 
an  iron  or  tin  box  in  which  to  keep  securities  deposited  as  collateral 
for  balances,"  which  was  to  be  kept  in  the  vault.  Clearings  then 
were  reported  to  have  been  between  two  and  three  million  dollars, 
excepting  immediately  after  the  first  of  the  month  when  the  monthly 
settlements  of  the  Board  of  Trade  ran  the  total  up  to  four  or  five 
million  dollars. 

Clearing  house  certificates  with  which  to  settle  balances  were  pro- 
vided for  at  some  of  the  earliest  meetings  and  soon  the  association 
developed  a  custom,  peculiar  to  Chicago,  of  trading  balances  at  the 
clearing  house.  It  is  said  that  this  came  about  first  through  a  desire 
on  the  part  of  the  messengers  to  avoid  the  counting  and  carrying  of 
so  much  money  through  the  streets  as  was  necessary  in  the  cases  of 
those  settlements  which  were  not  made  with  clearing  house  certifi- 
cates. This  trading  was  done  chiefly  by  the  clerks  at  the  clearing 
house  who,  as  soon  as  they  struck  their  own  balances,  and  while  the 
manager  was  entering  the  amounts  upon  his  sheet  and  footing  the 


504  FINANCING  AN  EMPIRE 

columns,  would  engage  in  loaning  balances  to  the  representatives 
of  debtor  banks.  Before  long  the  system  had  become  so  much  a 
part  of  the  clearing  house  routine  that  each  bank  definitely  instructed 
its  clerks  as  to  the  amounts  they  might  trade  and  with  whom.  It 
is  said  that  by  the  end  of  the  nineteenth  century  as  much  as  seventy- 
five  per  cent  of  all  balances  were  disposed  of  in  this  way.  So  far  as 
the  association  itself  was  concerned,  any  member  might  trade  his 
whole  balance  or  any  part  thereof  and  make  exchanges  with  as  many 
members  as  suited  his  convenience.  It  is  recorded,  for  example, 
that  in  August  of  1897  the  Northwestern  National  Bank  traded  its 
balance  with  fifteen  different  banks  on  an  occasion  when  its  credit 
balance  of  $2,622,000 — more  than  ninety-eight  per  cent  of  the  credit 
balances  of  all  the  banks,  as  on  that  particular  day  there  were  only 
two  other  creditor  banks  in  the  whole  list  of  twenty-two  members. 
There  were  banks  which  preferred  not  to  follow  this  convenient 
method,  but  those  doing  so  made  reports  to  the  manager  of  the  clear- 
ing house  the  same  as  for  cash  settlements  and  on  a  special  blank 
for  that  purpose. 

Shortly  before  the  fire  of  1871  the  association  invested  a  large 
amount  of  money  in  making  its  rooms  attractive.  Everything,  ex- 
cept those  records  which  were  kept  in  bank  vaults,  was  lost  in  the 
conflagration  and  for  several  days  all  business  was  suspended.  On 
October  16,  however,  there  was  held  a  meeting  to  make  arrange- 
ments for  clearing  such  items  as  had  accumulated  since  the  fire.  This 
meeting  was  held  at  seven  o'clock  in  the  evening  and  it  was  agreed 
that  clearings  should  take  place  at  once.  Thereafter  clearings  were 
held  in  the  regular  manner  at  eleven  each  morning.  Since  the  asso- 
ciation had  no  place  to  hold  clearing  transactions,  it  rented  the  din- 
ing room  of  a  building  called  Standard  Hall  and  managed  as  best 
it  could  until  new  quarters  were  built. 

In  the  crisis  which  followed  the  era  of  speculation  induced  by 
the  destruction  of  1871,  the  association  for  the  first  time  lost  an  ap- 
preciable portion  of  its  membership  and  its  growth  was  retarded  for 
a  time.  In  order  to  save  the  situation,  many  members  felt  that  Chi- 
cago should  follow  the  example  of  other  cities  and  issue  clearing 
house  certificates  of  deposit  for  general  circulation,  but  after  dis- 
cussing the  matter  thoroughly  at  a  meeting  held  on  September  26, 
1873,  it  was  finally  agreed  that  as  a  matter  of  pride  and  honor  the 
bankers  of  Chicago  Mould  meet  their  obligations  so  long  as  they  were 
able.    Therefore,  instead  of  issuing  certificates  as  in  New  York  and 


HISTORY  OF  BANKING  IN  ILLINOIS  505 

elsewhere,  the  clearing  house  of  Chicago  made  public  announcement 
of  the  fact  that  the  individual  bankers  would  hold  themselves  per- 
sonally and  individually  responsible  for  the  payment  of  all  deposits 
in  their  banks. 

The  crisis  of  1873  led  the  association  to  a  realization  of  the  fact 
that  its  ideals  could  not  be  upheld  in  periods  of  crises  unless  even 
greater  discrimination  were  made  in  the  matter  of  admissions  to  mem- 
bership. Therefore  the  meeting  of  December  31, 1873,  adopted  a  reso- 
lution requiring  a  paid-up  capital  stock  of  $250,000,  and  on  April  13, 
two  years  later,  another  was  passed  asking  the  Comptroller  of  the  Cur- 
rency to  instruct  his  national  bank  examiners  to  report  any  member 
of  the  clearing  house  whose  capital  stock  he  found  impaired. 

Nothing  of  great  historical  interest  occurred  from  then  until 
January  17,  1882,  when  the  association  was  formally  incorporated 
under  the  laws  of  the  state  of  Illinois.  The  official  incorporators 
were  Byron  L.  Smith,  James  D.  Sturges,  Chauncey  J.  Blair,  and 
Isaac  G.  Lombard,  all  of  whom  were  elected  to  the  board  of  direc- 
tors of  the  new  association.  At  the  time  of  this  reorganization  the 
Clearing  House  Association  embraced  eighteen  member  banks  and 
within  the  following  ten  years  membership  was  increased  to  thirty- 
three. 

In  July,  1893,  Marshall  Field,  Philip  D.  Armour,  R.  R.  Cable, 
Sprague,  Warner  and  Company,  and  Reid,  Murdoch  and  Company 
wrote  a  letter  to  the  association  asking  that,  for  the  benefit  of  the 
merchants  of  the  city,  the  bankers  of  Chicago  adopt  a  system  of 
clearing  house  certificates  similar  to  those  then  being  used  in  other 
cities.  A  meeting  was  held  to  consider  this  suggestion  and  the  bank- 
ers agreed  to  resort  to  the  use  of  such  certificates  only  for  the  settle- 
ment of  bank  balances  at  the  clearing  house.  Regardless  of  what 
might  be  deemed  good  policy  elsewhere,  the  bankers  of  Chicago  felt 
that  they  must  continue  to  supply  lawful  money  to  the  public  so 
long  as  it  was  in  any  way  possible  to  do  so.  Thus  Chicago  continued 
to  take  the  stand  she  had  established  in  1873  and  while,  for  the  sake 
of  conserving  cash  for  business  use,  the  bankers  were  willing  to  use 
clearing  house  certificates  among  themselves,  they  succeeded  in  find- 
ing a  way  through  the  crisis  without  imposing  such  paper  on  the 
public  for  general  circulation. 

Up  to  this  time  the  association  had  little  difficulty  with  mem- 
bers who  failed.     These  seldom  attempted  to  clear  on  the  day  of 


506  FINANCING  AN  EMPIRE 

their  failure,  and  in  most  cases  gave  notice  of  their  condition  in  ample 
time  for  their  exchange  to  be  withdrawn.  While  no  provision  in  this 
regard  was  made  at  the  outset,  there  was  later  incorporated  a  plan 
whereby  members  were  protected  against  a  failing  bank  through  a 
ruling  which  provided  that  whenever  such  an  one  might  attempt  to 
make  its  regular  clearings  at  a  time  when  it  was  unable  to  pay  the 
balances  against  it  at  the  clearing  house,  all  exchanges  presented  by 
it  and  against  it  be  returned  and  a  new  settlement  be  made,  the  same 
as  if  that  bank  had  not  participated  in  the  exchanges  of  the  day.  In 
the  event  that  such  a  member  did  not  return  its  exchanges  as  required 
in  the  rules,  the  amount  in  default  was  made  up  by  the  several  mem- 
bers exchanging  with  that  bank  in  proportion  to  their  respective 
balances  against  it,  and  the  manager  made  requisitions  accordingly 
so  as  to  accomplish  the  general  settlement  with  as  little  delay  as  pos- 
sible. In  this  way  those  who  had  presented  checks  against  the  fail- 
ing member  were  enabled  to  return  them  to  their  customers  and 
thereby  preserve  themselves  from  loss. 

Although  the  Chicago  Clearing  House  Association  was  orig- 
inally modeled  on  the  plans  adopted  by  similar  institutions  in  the 
east,  by  the  beginning  of  the  twentieth  century  it  had  developed  a 
character  peculiarly  its  own  and  had  become  the  source  of  many  in- 
spirations for  the  improvement  of  other  clearing  house  associations. 

In  1900  the  association  moved  into  new  quarters  better  suited  to 
its  particular  needs  than  any  others  occupied  thus  far,  and  the  fol- 
lowing year  gave  up  its  articles  of  incorporation  so  that  it  might 
reorganize  as  a  voluntary  association.  Through  this  change  the 
board  of  directors,  which  had  previously  been  active  in  the  affairs 
of  the  organization,  was  dispensed  with  and  all  business  transacted 
through  a  roster  of  officials  consisting  of  president,  vice-president, 
manager,  and  a  clearing  house  committee  of  five  members.  All  of 
these  offices  had  been  in  existence  prior  to  the  change,  and  it  is  inter- 
esting to  see  how  consistently  the  names  of  bankers  who  have  be- 
come worthy  of  a  place  in  history  have  appeared  in  these  positions. 
From  the  date  of  the  organization  of  the  Chicago  Clearing  House 
Association  until  1897,  when  he  became  Secretary  of  the  Treasury, 
more  than  twenty  years,  Lyman  J.  Gage,  first  as  a  representative 
of  the  Merchants  Savings,  Loan,  and  Trust  Company  and  later 
from  the  First  National  Bank,  served  almost  continually  either  as  a 
member  of  the  clearing  house  committee  or  in  the  capacity  of  presi- 
dent or  vice-president.    After  his  retirement  from  the  First  National 


HISTORY  OF  BANKING  IN  ILLINOIS  507 

Bank,  James  B.  Forgan  stepped  in  and  continued  to  carry  on  the 
work  which  Mr.  Gage  had  formerly  managed  so  successfully.  As 
one  reads  the  minutes  of  the  association  he  finds  that  it  was  Mr. 
Gage  who  was  usually  asked  to  do  all  difficult  tasks  arising.  It  was 
he  who  was  made  one  of  a  committee  of  two  to  discharge  unsatisfac- 
tory employees,  or  one  of  a  committee  of  five  to  investigate  the  con- 
dition of  a  doubtful  bank;  and  should  death  take  one  of  the  prom- 
inent bankers  of  the  city,  it  would  fall  to  Mr.  Gage's  lot  to  present 
suitable  resolutions  of  sympathy  to  his  bereaved  family.  Similarly, 
one  finds  in  the  roster  of  those  most  active  in  the  association  such 
names  recurring  time  and  again  as  Orson  Smith,  E.  I.  Tinkham, 
I.  G.  Lombard,  John  J.  Mitchell,  and  C.  J.  Blair. 

An  innovation  in  which  the  Chicago  Clearing  House  Association 
was  later  to  be  imitated  by  similar  organizations  in  all  parts  of  the 
country  was  first  suggested  on  February  5,  1901,  when  Byron  L. 
Smith  proposed,  at  a  meeting  of  the  clearing  house  committee,  that 
an  examiner  be  employed  to  make  detailed  examinations  of  the  af- 
fairs of  members  and  those  clearing  through  members  whenever  such 
an  examination  might  be  deemed  advisable.  At  that  time  the  sug- 
gestion was  not  considered  worthy  of  much  consideration  and  was 
passed  over  with  a  hasty  vote  which  included  a  very  small  minority 
of  "yeas."  Mr.  Smith,  however,  persisted  in  his  belief  that  such 
examinations  should  be  installed  and  less  than  five  years  later  cir- 
cumstances had  so  proved  his  point  that  when  he  next  made  the  same 
proposal  it  was  adopted  unanimously. 

In  December,  1905,  the  disclosure  of  the  serious  impairment  of 
the  capital  of  one  national  and  two  state  banking  institutions,  all 
under  the  direct  management  of  John  R.  Walsh,  one  of  Chicago's 
most  highly  respected  citizens  and  a  man  who  only  a  few  years  be- 
fore had  served  two  terms  as  president  of  the  Chicago  Clearing 
House  Association,  disclosed  a  condition  which  so  surprised  and  ap- 
palled the  bankers  of  the  city  that  they  were  stunned  into  providing 
"an  ounce  of  prevention"  almost  immediately.  At  a  meeting  as- 
sembled at  two-thirty  o'clock  on  a  Monday  morning  and  attended 
by  anxious  representatives  from  practically  every  member  bank, 
there  was  described  a  situation  in  which  the  bankers  might  take  their 
choice  of  seeing  those  three  banks  closed  that  day  and  thus  bringing 
about  the  certainty  of  runs  on  their  own  institutions,  or  they  might 
themselves  guarantee  the  depositors  of  these  three  institutions  the 
return  of  their  funds  through  the  outright  purchase  of  the  assets 


•508  FINANCING  AN  EMPIRE 

and  liabilities  of  the  impaired  banks,  on  certain  guarantees  from  the 
directors.  This  last  method  was  agreed  upon  as  likely  to  involve  the 
smaller  ultimate  loss  and  the  members  of  the  association  divided  the 
responsibilities  and  liabilities  among  themselves  and  thereby  assumed 
the  task  of  paying  about  twenty  million  dollars  to  depositors. 
Through  this  prompt  action,  a  general  disturbance  which  ultimately 
might  have  involved  the  entire  business  community,  was  averted  and 
not  a  customer  lost  a  cent,  although  the  undertaking  proved  expen- 
sive to  the  members  of  the  association. 

After  telling  of  this  occurrence,  Mr.  James  B.  Forgan,  in  an  ad- 
dress before  the  Clearing  House  Section  of  the  American  Bankers' 
Association  in  1910  said: 

"Clearing  House  examinations  in  Chicago  grew  out  of  this  inci- 
dent. We  determined  to  know  for  ourselves  the  actual  condition 
of  all  the  banks  associated  together  in  the  clearing  house.  The  first 
thing  to  do  was  to  get  a  competent  man  to  undertake  to  do  the  work. 
We  were  very  fortunate  in  discovering  the  right  kind  of  man.  We 
did  not  hamper  him  with  any  hard  and  fast  rules  or  arbitrary  in- 
structions. We  simply  adopted  the  policy  that  he  with  sufficient 
assistants  should  make  examinations  of  the  bank  and  report  on  the 
conditions  found  by  him  in  full  detail  to  the  directors  of  each  bank 
examined.  His  reports  to  the  directors  are  just  such  as  competent 
accountants  would  make  were  they  employed  by  the  directors  to 
make  examinations.  In  this  way  each  bank  has  the  advantage  of 
having  an  examination  by  a  competent  examiner  made  expressly  for 
the  directors  of  the  bank." 

Within  three  years  after  Chicago  had  installed  the  system  of 
Clearing  house  examinations  St.  Louis,  Philadelphia,  San  Francisco, 
Los  Angeles,  Kansas  City,  Minneapolis,  St.  Paul,  and  St.  Joseph 
followed  suit.  Since  then  clearing  house  examinations  have  become 
so  much  a  part  of  the  clearing  house  routine  that  even  counties  and 
states  are  finding  ways  of  giving  similar  service  to  the  scattered 
banks  of  country  communities,  and  there  is  no  large  city  without 
such  an  organization. 

James  B.  McDougal,  who  had  been  a  national  bank  examiner 
for  many  years,  was  the  man  referred  to  by  Mr.  Forgan.  He  was 
chosen  as  the  best  man  available  for  the  position  after  a  long  search 
which  led  into  many  parts  of  the  country,  for  the  officers  of  the  clear- 
ing house  association  believed  that,  in  inaugurating  this  new  move- 
ment, the  personality  and  ability  of  the  man  who  was  to  carry  it  out 


HISTORY  OF  BANKING  IN  ILLINOIS  509 

was  all  important.  Mr.  McDougal  remained  with  the  association 
as  its  examiner  until  the  establishing  of  the  Federal  Reserve  Bank 
of  Chicago  in  1914  when  he  was  made  governor  of  that  institution. 

Mr.  McDougal  himself  attributed  the  great  success  of  this  under- 
taking to  the  fact  that  he  was  given  a  free  hand  to  work  out  problems 
as  they  arose  and  never  found  himself  hampered  with  ready-made 
rules  that  would  not  exactly  fit  the  case  in  hand.  When  first  he  re- 
ceived his  appointment  from  the  Chicago  Clearing  House  Commit- 
tee, Mr.  McDougal  went  to  these  gentlemen  to  ask  for  instructions. 
Mr.  F organ,  Chairman  of  the  Clearing  House  Committee,  said  that 
the  committee  had  no  instructions  to  offer.  "But,"  Mr.  McDougal 
replied,  "You  gentlemen  have  been  here  for  years.  You  know  the 
situation.  You  know  where  the  weak  spots  are  and  which  banks 
should  have  attention  first,  while  I  have  just  arrived  on  the  scene 
and  cannot  possibly  know  where  it  is  best  to  start." 

"You'll  soon  find  that  out,"  responded  Mr.  Forgan,  "and  you  may 
depend  on  us  to  help  you  at  every  turn,  but  we  shall  never  hamper 
you  with  definite  instructions." 

Since  Mr.  McDougal  was  not  required  to  give  specific  reports 
of  his  findings  to  the  clearing  house  committee,  except  in  cases  where 
extreme  action  was  demanded,  he  was  able  to  conduct  his  work  in 
that  confidential  manner  which  quickly  won  the  cooperation  of  every 
banker,  for  none  needed  to  fear  that  the  private  affairs  of  his  insti- 
tution would  get  into  a  competitor's  hands  through  the  office  of  the 
clearing  house  examiner.  The  system,  as  Mr.  McDougal  developed 
it,  soon  became  a  most  efficient  branch  of  the  association  for  the 
regulation  of  all  banks  whether  members  or  not,  enjoying  clearing 
privileges.  These  benefits  were  strictly  mutual  and  were  shared  by 
large  and  small  alike,  and  many  a  mistake  of  policy  or  judgment  re- 
ceived correction  in  time  to  avoid  probable  future  difficulties.  Jeal- 
ousies were  overcome  and  suspicion  and  distrust,  such  as  frequently 
exist  among  banks  having  no  real  knowledge  of  the  condition  of  one 
another's  affairs,  were  supplanted  by  respect  and  confidence.  From 
the  time  of  the  institution  of  clearing  house  examinations,  depositors 
in  all  clearing  house  banks  have  found  reason  to  feel  that  their 
funds  were  amply  secured,  for  with  this  constant  check  no  bank  has 
been  permitted  to  get  into  such  a  condition  that  its  affairs  could  not 
be  remedied  by  the  combined  efforts  of  all  the  members  of  the  Chi- 
cago Clearing  House  Association. 

The  system  of  clearing  house  examination  was  scarcely  a  year 


510  FINANCING  AN  EMPIRE 

old  when  the  panic  of  1907  burst  upon  the  country.  Before  long- 
hank  deposits  had  become  so  pyramided  that  an  intolerable  situa- 
tion existed.  Country  bankers,  fearing-  that  they  could  not  secure 
adequate  funds  were  not  only  withdrawing  all  their  deposits,  but 
many  of  them  were  over-drawing  or  borrowing  large  amounts.  Chi- 
cago had  large  credits  in  New  York  and  New  York  in  turn  had 
credits  in  Chicago.  When  the  house  of  cards  fell  in  New  York  fol- 
lowing the  failure  of  the  Knickerbocker  Trust  Company  and  a  num- 
ber of  other  institutions,  bankers  everywhere  withdrew  their  funds 
from  New  York  City  and  New  York  in  turn  started  withdrawing  hers 
from  Chicago  at  a  time  when  country  banks  were  drawing  on  Chi- 
cago banks  quite  heavily. 

Immediately  there  existed  a  situation  in  which  it  was  plain  that 
unless  something  were  done  immediately  Chicago  banks  would  be 
drained  of  all  cash.  The  old  question  of  issuing  clearing  house  scrip 
arose  and  there  were  bankers  in  the  city  who  still  maintain  that  since 
the  banks  of  Chicago  had  weathered  the  storms  of  1873  and  1893 
without  resorting  to  such  measures  and  had  thereby  fostered  great 
confidence  in  the  banking  facilities  of  the  city,  they  would  go  through 
1907  in  the  same  way.  Such  arguments,  however,  did  not  stand  up 
against  the  fact  that  cash  reserves  were  pouring  out  of  the  city  and 
when  it  was  learned  that  New  York  banks  had  reached  such  straits 
that  several  of  them  had  personal  representatives  then  on  trains  ap- 
proaching Chicago  who  were  expecting  to  carry  away  quantities  of 
the  city's  gold,  the  bankers  of  the  Chicago  Clearing  House  Associa- 
tion swallowed  their  pride  and  went  on  a  clearing  house  certificate 
basis. 

In  all  probability  the  panic  of  1907  was  the  only  occasion  upon 
which  the  Chicago  Clearing  House  Association  will  ever  be  known 
to  have  issued  clearing  house  certificates  of  deposit  for  general  cir- 
culation. By  the  time  the  difficulties  of  1914  had  arrived,  the  Ald- 
rich-Vreeland  Law  with  its  provision  for  an  emergency  cur- 
rency everywhere  acceptable  was  in  operation  and  notes  authorized 
bv  it  were  issued  in  generous  amount  by  the  National  Currency  As- 
sociation  of  Chicago,  an  organization  which,  while  it  doubtless  em- 
braced all  clearing  house  banks  with  national  charters  in  its  member- 
ship, was  not  in  any  way  affiliated  with  the  Chicago  Clearing  House 
Association.  Immediately  thereafter  the  Federal  Reserve  Act  went 
into  active  operation  which  during  the  first  eleven  years  of  its  exist- 
ence adequately  bore  out  the  opinion  of  bankers  that  never,  under  its 


HISTORY  OF  BANKING  IN  ILLINOIS  513 

sway,  would  an  occasion  arise  calling'  for  the  use  of  emergency  cer- 
tificates of  any  kind. 

Nevertheless,  the  advent  of  the  Great  war  produced  a  great 
deal  of  excitement  in  that  it  seriously  upset  the  usual  course  of  busi- 
ness. The  demand  it  put  on  active  members  of  the  Clearing  House 
Association  was  ably  described  by  Mr.  Forgan  in  an  address  given 
before  the  Bankers  Club  in  1921.    In  that  talk  he  said  in  part: 

"On  the  afternoon  of  Saturday,  August  1,  1914,  I  was  playing 
golf  on  the  links  of  the  Chicago  Golf  Club  at  Wheaton  when  an 
urgent  telegram  was  delivered  to  me  from  Mr.  McAdoo,  Secretary 
of  the  Treasury.  He  requested  that  a  committee  of  the  Chicago 
Clearing  House  should  be  in  Washington  on  Monday  to  meet  him 
along  with  similar  committees  from  the  other  two  central  reserve 
cities,  Xew  York  and  St.  Louis,  for  consultation  on  the  imminent 
conditions  developing  in  Europe.  I  dropped  my  game  and  as  soon 
as  possible  got  in  communication  by  telephone  with  the  other  mem- 
bers of  the  Chicago  Clearing  House  Committee.  I  succeeded  in  get- 
ting Messrs.  Hamill  and  Reynolds  to  agree  to  meet  me  at  the  Union 
Depot  the  next  day,  Sunday,  in  time  to  catch  the  12:40  train  for 
Washington.  I  arranged  with  Mr.  Crampton,  then  Secretary  of 
the  Illinois  State  Bankers'  Association,  who  happened  to  be  at 
Wheaton,  to  secure  the  railroad  tickets  for  us  and  to  meet  us  with 
them  at  the  depot. 

"I  remained  over  night  at  Wheaton  and  came  into  Chicago  in 
the  morning  by  automobile.  My  family  were  away  at  the  time  and 
there  was  no  one  in  my  home  but  a  caretaker.  Fortunately,  as  it 
afterwards  turned  out,  I  had  to  r'o  home  for  something  I  wanted  to 
take  along  with  me  and  while  there  I  was  called  to  the  telephone 
and  found  Mr.  Woodward,  Chairman  of  the  Xew  York  committee, 
at  the  other  end  of  the  line.  We  had  learned  from  the  newspapers 
on  Saturday  that  Austria  had  declared  war  on  Serbia,  that  they  had 
begun  to  bombard  Belgrade,  and  that  the  Russian  army  was  mobi- 
lized along  the  Austrian  frontier,  but  we  hoped  diplomatic  negotia- 
tions goine-  on  among  the  other  great  powers  would  prevent  the 
war  spreading  to  a  general  conflagration. 

"Mr.  Woodward  had  later  information,  however,  and  told  me 
that  Germany  had  issued  a  twelve-hour  ultimatum  to  Russia  which 
had  expired,  and  that  German  troops  had  advanced  to  the  French 
frontier,  in  consequence  of  which  France  had  ordered  a  general  mob- 
ilization of  her  army.     He  also  informed  me  that  Belgium  had  ap- 


514  FINANCING  AX  EMPIRE 

pealed  to  England  for  diplomatic  intervention  to  safeguard  her  in- 
tegrity, and  that  while  France  had  given  assurance  to  England  that 
she  would  respect  the  neutrality  of  Belgium.  Germany  would  give 
no  such  assurance;  also  that  England  had  informed  France  that 
she  had  refused  to  acquiesce  in  the  German  violation  of  Belgium, 
and  that  the  British  fleet  would  give  France  all  the  protection  in  its 
power,  should  the  German  fleet  undertake  hostile  operations  against 
the  French  coast  or  shipping.  It  was  therefore  apparent  that  a  gen- 
eral conflagration  of  war  in  Europe  was  inevitable,  involving  Ger- 
many and  Austria  on  one  side,  and  Russia,  Belgium,  France,  and 
England  on  the  other. 

"Mr.  Woodward  told  me  that  under  these  circumstances  the  New 
York  committee  had  decided  not  to  go  to  Washington,  but  had  in- 
vited Mr.  McAdoo  to  come  to  New  York  as  they  would  have  to  get 
ready  to  meet  conditions  on  Monday  morning,  the  issuing  of  clear- 
ing house  certificates  being  an  inevitable  necessity.  He  said  he  had 
been  trying  to  get  in  touch  with  some  of  the  bankers  in  St.  Louis 
by  telephone  but  had  not  been  so  far  successful.  He  asked  me  to 
impart  the  information  to  the  clearing  houses  of  St.  Paul,  Minne- 
apolis, Milwaukee,  Kansas  City,  and  Omaha,  and  that  he  would  notify 
the  larger  eastern  cities. 

"I  first  tried  my  best  to  get  in  touch  with  some  of  our  local 
bankers,  but  not  one  of  them  was  at  home.  They  were  all  at  church, 
I  guess,  or  on  the  golf  links.  You  will  realize  that  all  this  took 
time,  and  with  nothing  whatever  accomplished  I  had  barely  time 
left  to  get  to  the  depot  in  time  to  catch  the  train  where  Messrs. 
Hamill  and  Reynolds  were  waiting  to  meet  me.  My  automobile 
was  waiting  at  the  door  so  I  made  for  it,  but  as  I  stepped  out  of  the 
bouse  I  saw  St.  Chiysostom's  Church  across  the  street  and  I  imme- 
diately reflected  that  Mr.  Street,  Manager  of  the  Clearing  House, 
would  certainly  be  there.  I  rushed  across  the  street,  into  the  church, 
up  the  center  aisle,  tapped  Mr.  Street  on  the  shoulder,  told  him  to  get 
his  hat  and  come  with  me,  which  he  promptly  did.  I  asked  him  to  jump 
into  the  automobile  and  told  the  chauffeur  to  speed  to  the  depot.  On 
the  way  there  I  explained  to  Mr.  Street  the  situation.  I  did  not 
think  the  committee  would  go  to  Washington,  but  I  told  him  that 
if  they  did  he  must  carry  out  Mr.  Woodward's  request  in  regard 
to  notifying  the  other  cities,  and  that  he  must  immediately  get  in 
touch  with  the  other  members  of  the  committee  and  call  a  meeting  of 
our  own  Clearing  House  by  telephone  to  take  the  necessary  action. 


HISTORY  OF  BANKING  IN  ILLINOIS  515 

"When  we  arrived  at  the  depot  I  found  my  associates  on  the 
committee  talking  to  the  conductor  and  asking  him  to  hold  the  train 
a  few  minutes  longer.  It  was  then  several  minutes  past  time  for 
starting.  I  was  breathless  and  as  the  conductor  immediately  called 
out  "All  aboard"  we  jumped  on  the  train,  where  I  imparted  Mr. 
Woodward's  information.  By  the  time  we  reached  Englewood  we 
had  decided  that  home  was  the  place  for  us,  so  we  got  off  the  train 
and  returned  to  Chicago  in  a  taxicab. 

"We  found  Mr.  Street  in  his  office  in  the  Clearing  House  busily 
endeavoring  to  carry  out  his  instructions.  After  luncheon  at  Rec- 
tor's restaurant  we  went  into  session  at  the  clearing  house.  We  noti- 
fied the  other  cities  and  got  into  direct  touch  with  the  New  York  com- 
mittee, which  was  in  session  and  which  kept  us  posted  as  to  the  devel- 
opments there.  We  succeeded  in  getting  a  full  meeting  of  the  Asso- 
ciation^ at  eight-thirty  that  night.  At  this  meeting  it  was  decided 
to  require  notices  on  the  withdrawal  of  savings  accounts  to  pay  checks 
except  those  for  small  amounts  through  the  Clearing  House  only, 
and  to  commence  issuing  clearing  house  certificates  on  Monday  morn- 
ing. We  also  sent  a  telegram  to  the  Secretary  of  the  Treasury  re- 
questing that  he  cause  to  be  issued  to  the  Assistant  Treasurer  here 
fifty  million  dollars  Aldrich-Vreeland  notes  in  small  denominations 
to  be  apportioned  among  the  banks  in  the  National  Currency  Asso- 
ciation of  Chicago  which  already  had  been  organized." 

For  many  years  after  the  establishment  of  the  Federal  Reserve 
Rank  of  Chicago  in  its  own  building,  the  Chicago  Clearing  House 
Association  was  the  only  outside  institution  permitted  housing 
quarters  under  the  Federal  Reserve  Bank  roof.  It  was  provided 
with  spacious  and  excellently  equipped  quarters  covering  an  entire 
floor  of  the  building  and  there,  in  a  quiet,  orderly  manner  financial 
transactions  comparing  favorably  in  size  with  any  others  in  the  struc- 
ture occurred  daily.  Instead  of  the  two  or  three  million  dollar  daily 
clearings  considered  large  in  1865,  the  Chicago  Clearing  House  As- 
sociaion  at  the  time  of  its  sixtieth  anniversary  in  1925  conducted 
two  daily  clearings,  one  amounting  to  eleven  or  twelve  million  and 
the  other  to  more  than  one  hundred  and  fifteen  million  dollars.  This 
vast  amount  of  business  is  conducted  with  the  use  of  something  like 
seven  per  cent  in  funds  actually  transferred,  the  balance  being  settled 
through  the  Federal  Reserve  Bank. 

An  Early  Clearings  plan  was  first  put  into  operation  by  the 
Chicago  Clearing  House  in  July,  1916,  the  purpose  being  to  provide 

Yd.  I— IT 


516  FINANCING  AN  EMPIRE 

a  means  for  Jhe  collection  of  items  on  non-member  banks  scattered 
throughout  the  city,  the  Clearing  House  acting  as  agent  for  the 
member  banks.  Prior  to  the  installation  of  this  plan,  items  on  these 
banks  were  handled  by  mail,  or  by  messengers  sent  out  by  the  indi- 
vidual members.  By  taking  care  of  these  items  at  the  Clearing 
House,  it  was  possible  to  eliminate  considerable  messenger  service 
and,  through  effecting  one-day  payment  for  the  items,  save  one 
day's  time,  and  in  some  instances,  two  days,  in  interest. 

All  checks  to  be  handled  under  this  plan  were  put  up  in  enve- 
lopes, the  total  amount  written  on  the  outside,  and  the  enve- 
lopes totaled  at  the  Clearing  House.  Originally,  routes  were  estab- 
lished by  the  Clearing  House,  and  messengers  were  sent  out  early  in 
the  morning  with  the  packages  of  checks,  the  outlying  banks  agreeing 
to  waive  inspection  of  the  items  and  issue  their  draft  on  a  member 
bank  in  payment  of  the  total,  any  return  item  to  be  deducted  from 
the  following  day's  total.  The  messengers  returned  to  the  Clearing 
House  promptly  and  the  drafts  were  cleared  against  members 
through  the  regular  exchanges  for  the  amount  of  the  items  they  had 
presented  for  collection. 

At  one  time,  there  were  listed  on  the  Early  Clearing  sheet  the 
names  of  one  hundred  and  two  non-member  banks,  the  items  on  thir- 
ty-two of  which  were  collected  by  messenger,  the  other  banks  agree- 
ing to  call  for  their  items  at  the  Clearing  House. 

This  plan  proved  to  be  of  great  advantage  to  the  member  banks. 
The  outlying  non-members  soon  found  it  to  their  benefit  also,  in 
that  they  received  all  of  their  checks  at  one  time  early  in  the  day, 
and  paid  for  them  in  one  check,  instead  of  making  out  a  large  num- 
ber to  the  various  banks.  The  affiliated  banks,  however,  which 
cleared  through  regular  members,  soon  discovered  that  in  this  regard 
the  non-members  had  some  advantage  over  them.  The  items  of 
the  affiliated  members  were  not  cleared  until  ten-thirty  in  the  morn- 
ing. Then  as  the  member  banks  had  to  prove  and  sort  these  checks 
before  it  was  possible  to  return  them  to  the  affiliated  banks,  it  fre- 
quently happened  that  an  outlying  bank  would  receive  its  items  at 
an  hour  too  late  to  comply  with  the  requirements  of  the  Clearing 
House  in  the  matter  of  giving  notice  on  non-payable  items  by  the 
time  required  in  the  rules.  Therefore,  on  November  1,  1921,  a  sec- 
ond plan  was  put  into  operation.  The  names  of  all  the  affiliated 
banks  were  added  to  the  Early  Clearing  sheet,  and  in  addition,  the 
affiliated  banks  were  allowed  to  deposit  at  the  Clearing  House,  items 


HISTORY  OF  BANKING  IN  ILLINOIS  517 

drawn  on  all  the  other  banks  on  the  list.  Through  this  arrangement, 
the  affiliated  banks  were  able  to  get  a  large  proportion  of  their 
checks  at  the  Clearing  House  at  an  early  hour,  all  of  which  had 
previously  been  handled  through  the  regular  clearings,  and  usually 
not  ready  for  the  affiliated  banks  until  noon  or  after. 

At  the  end  of  192.5,  the  Chicago  Clearing  House  Early  Clearing 
sheet  included  the  names  of  one  hundred  and  sixty-five  banks,  one 
hundred  and  seventeen  of  which  were  affiliated  members,  and  forty- 
eight  non-member  banks.  There  were  depositing  items  for  collection 
at  the  Clearing  House  twenty-eight  regular  members  and  seventy- 
five  affiliated  members.  At  this  time  there  was  a  plan  under  way 
which  contemplated  adding  the  names  of  the  thirty  regular  members 
of  the  Association  to  the  Early  Clearing  list,  thereby  making  it  pos- 
sible for  the  affiliated  banks  to  deposit  items  drawn  on  the  regular 
members,  at  the  Clearing  House,  and  enabling  the  regular  members 
to  get  these  items  earlier  in  the  day,  as  under  the  present  plan  these 
items  are  all  deposited  at  the  affiliated  member's  correspondent  bank 
and  not  cleared  until  the  ten-thirty  clearings. 

At  this  time,  it  has  also  been  proposed  to  add  to  the  Early  Clear- 
ing list  the  City  Treasurer  and  County  Treasurer.  Each  of  these 
offices  issues  a  great  many  checks  drawn  on  the  Treasurer  which  it  is 
necessary  for  the  banks  to  present  at  the  office  for  payment,  thereby 
causing  considerable  delay  in  the  final  payment.  Under  the  new 
plan,  these  checks  will  be  handled  at  the  Early  Clearings  the  same 
as  are  those  of  non-member  banks,  thereby  enabling  each  member 
bank  to  receive  its  proper  credit  on  them  at  ten-thirty  of  the  same 
day. 

In  active  membership  the  association  has  not  grown  in  proportion 
to  its  growth  in  clearings.  This  is  due  chiefly  to  the  fact  that  each 
member  bank  clears  for  a  number  of  its  customer  institutions  located 
in  outlying  sections  of  the  city.  On  the  formation  of  the  association 
in  186.5  twenty  banks  applied  for  membership  immediately.  In  1915 
when  the  association  was  fifty  years  old  its  membership  consisted  of 
twenty-one  banks  and  forty-four  affiliated  institutions — the  latter 
clearing  through  active  members  but  subjected  to  the  same  rigid 
regulations  as  though  they  enjoyed  active  membership.  By  the  time 
the  Chicago  Clearing  House  Association  had  reached  its  sixtieth  an- 
niversary it  consisted  of  thirty  active  member  banks  clearing  for  one 
hundred  and  forty-four  affiliated  institutions,  a  marked  indication  of 
the  rapid  growth  of  the  outlying  banking  business  in  the  city. 


518  FINANCING  AN  EMPIRE 

In  Chicago  the  clearing  house  has  long  led  all  local  banking  ac- 
tivities through  fostering  a  spirit  of  cooperation  which  subordinates 
unreasonable  self-interest  to  the  general  welfare.  No  bank  finds 
any  discrimination  against  it  in  its  clearing  house  membership;  the 
large  downtown  institution  and  the  small  "neighborhood"  bank  asso- 
ciate on  an  equal  footing,  each  receiving  its  proportionate  share  of 
dividends  in  the  way  of  a  membership  which  is  assumed  as  a  badge 
of  honor.  The  government  of  the  association  is  entirely  representa- 
tive and  democratic  and  requires  every  member,  regardless  of  size 
or  standing  in  the  community,  to  submit  to  the  periodic  inspections 
of  its  examiners  and  to  supply  the  manager  with  sworn  statements 
of  condition  at  least  five  times  each  year.  Each  member  is  assessed 
a  stipulated  fee  and,  when  this  does  not  cover  all  expenses,  the  bal- 
ance is  paid  by  members  pro  rata  according  to  their  daily  average 
of  exchanges.  No  bank  is  now  admitted  to  active  membership  unless 
it  have  its  principal  office  in  the  city  of  Chicago,  be  organized  under 
either  the  laws  of  the  United  States  or  of  the  State  of  Illinois,  and 
have  a  fully  paid-in  capital  stock  of  at  least  five  hundred  thousand 
dollars. 


CHAPTER  XXIX 
CHICAGO  STOCK  EXCHANGE 

Organization  of  the  first  Stock  Exchange  in  Chicago  in  1865 — Second  Stock  Exchange, 
1869— Chicago  Mining  Board,  1879— Present  Stock  Exchange  organized,  1882— 
Development  of  local  industrial  enterprises — First  Stock  Exchange  Building — 
Diamond  Match  pool — Growth  of  the  Chicago  Stock  Exchange. 

Although  the  state  of  Illinois  had  been  practically  without  an 
organized  system  for  the  establishment  and  regulation  of  banks  for 
some  years  prior  to  the  passing  of  the  National  Bank  Act,  the  city 
of  Chicago  was  so  strategically  located  as  to  make  it  one  of  the  finan- 
cial centers  of  the  middle  west.  This  was  brought  about  largely  by 
the  heavy  grain  shipments  which  centered  at  that  point.  In  order 
to  facilitate  trading  in  grain  at  a  time  when  all  money,  and  especially 
government  notes,  was  fluctuating  widely  because  of  an  unstable 
gold  market,  a  group  of  men  whose  interests  centered  in  the  Chicago 
Board  of  Trade  took  steps  to  establish  a  Chicago  Stock  Exchange 
in  order  to  provide  a  market  on  which  gold  quotations  might  be  es- 
tablished. 

The  first  meeting  called  with  this  end  in  view  was  held  on  Jan- 
uary .5,  186.3,  and  just  two  weeks  later,  January  19,  rooms  for  busi- 
ness were  opened  in  the  building  owned  by  H.  H.  Honore  at  num- 
ber fifty-three  Dearborn  Street.  The  first  president  of  the  new  Chi- 
cago Stock  Exchange  was  John  C.  Hilton,  who  had  previously  been 
one  of  the  incorporators  of  the  Chicago  Chamber  of  Commerce.  Cal- 
vin T.  Wheeler,  one-time  president  of  the  Chicago  Board  of  Trade, 
was  chosen  vice-president  and  two  members  of  that  board,  Solon 
McElrov  and  William  H.  Goodnow,  were  selected  for  the  offices  of 
secretary  and  treasurer,  respectively. 

Even  before  the  rooms  had  been  secured,  the  Chicago  Stock  Ex- 
change began  to  fulfill  its  mission  of  providing  a  market  for  gold, 
according  to  the  records  some  nine  thousand  dollars'  worth  of  this 
commodity  having  changed  hands  at  a  price  of  207  on  the  evening 
of  the  first  organization  meeting.  Before  long  the  Stock  Exchange 
was  providing  regular  quotations  on  government  bonds  and  notes, 
Cook  County  scrip,  Chicago  City  bonds,  and  a  list  of  local  commer- 

519 


520  FINANCING  AX  EMPIRE 

cial  securities  among  which  were  included  those  of  the  First  National 
Bank,  the  Merchants  Loan  and  Trust  Company,  Chicago  Gas,  Light 
and  Coke  Company,  and  the  Chamber  of  Commerce. 

Although  the  Stock  Exchange  was  organized  primarily  to  pro- 
vide a  market  for  ever  fluctuating  gold,  and  met  all  expectations  in 
that  respect,  it  was  found  to  be  similarly  valuable  in  the  part  played 
in  creating  a  value  for  the  scrip  which  Cook  County  issued  in  amounts 
of  several  million  dollars  for  the  purpose  of  equipping  soldiers.  Be- 
fore the  Stock  Exchange  had  undertaken  to  trade  in  this  paper,  it 
was  quoted  at  prices  so  low  as  nearly  to  defeat  the  purpose  of  its 
issue.  Once  the  Exchange  had  taken  to  handling  it  actively,  how- 
ever, its  quotations  were  maintained  at  a  consistently  high  level. 

Before  long  there  came  the  collapse  of  the  Southern  Confederacy 
and  with  it  there  was  abolished  any  need  for  a  market  for  gold,  as 
that  metal  was  well  able  to  maintain  itself  at  constant  levels  when 
the  credit  of  the  government  was  no  longer  a  matter  of  daily  spec- 
ulation depending  upon  the  fortunes  of  the  Union  in  its  battles. 
Likewise  Cook  County  had  no  further  need  for  issuing  war  scrip. 
Since  these  money  quotations  had  formed  the  chief  business  of  the 
Exchange  during  the  short  period  of  its  existence,  and  it  had  not  de- 
veloped a  securities  market  to  any  great  extent,  for  the  latter  was 
not  as  yet  in  great  demand  in  a  country  still  comparatively  new, 
there  now  ceased  to  exist  any  real  need  for  the  Chicago  Stock  Ex- 
change. The  organization  was  not  abandoned,  but  one  by  one  its 
memberships  were  permitted  to  lapse,  until  President  John  C.  Hil- 
ton was  left  as  sole  survivor  in  lawful  possession  of  the  furniture 
and  fixtures,  together  with  a  treasury  which  still  containued  ten  thou- 
sand dollars.  No  further  thought  was  given  the  institution  until  1869, 
when  the  state  passed  a  law  prohibiting  the  granting  of  special  char- 
ters to  corporations.  In  the  rush  for  charters  which  occurred  just 
before  this  law  went  into  effect,  there  was  a  group  of  brokers  who 
obtained  one  for  a  second  stock  exchange,  partly  because  they  be- 
lieved that  in  the  not  very  distant  future  there  might  again  be  enough 
business  to  warrant  having  such  an  organization,  and  partly  because 
they  thought  that  in  a  charterless  future,  they  might  be  able  to  sell 
theirs  at  an  excellent  profit.  Under  this  new  charter  a  room  was 
opened  in  Clark  Street  between  AVashington  and  Madison  streets 
for  the  space  of  a  few  months,  but  the  stock  and  bond  business  was 
then  so  thoroughly  centered  in  New  York  that  it  could  not  be  trans- 
planted to   Chicago  under  any  inducements  then  available.     Thus 


HISTORY  OF  BANKING  IN  ILLINOIS  521 

the  new  exchange,  like  the  old  one,  had  so  little  business  that  it 
maintained  only  a  feeble  existence  until  it  was  destroyed  by  the  fire 
of  1871. 

During  the  following  ten  years  Chicago  had  no  stock  exchange, 
nor  did  the  need  for  one  develop  until  the  boom  of  1879,  which  was 
accompanied  by  vast  immigration  and  great  national  developments, 
with  discoveries  of  silver  deposits  in  Colorado.  Then  prices  every- 
where soared  and  a  great  speculative  era  developed,  which  was  par- 
ticularly marked  on  the  New  York  Stock  Exchange  and  in  the  grain 
and  provision  business  in  Chicago.  The  Colorado  silver  discoveries  had 
so  boomed  mining  stocks  everywhere  that  a  group  known  as  the  Chi- 
cago Mining  Board  opened  rooms  in  the  Brevoort  House  on  Madi- 
son Street  on  December  16,  1879,  for  the  purpose  of  trading  in 
securities  in  general  and  mining  stocks  in  particular.  This  was  or- 
ganized as  a  closed  corporation  under  the  laws  of  Illinois.  Its  six- 
teen directors  were  the  only  stockholders,  and  many  of  these  were 
not  primarily  interested  in  securities. 

Almost  immediately  there  came  applications  for  seats  in  the  new 
organization  and  among  these  were  those  of  brokers  from  New  York, 
Boston,  Philadelphia,  and  St.  Louis.  Dues  were  fixed  at  fifty  dol- 
lars a  year,  but  beyond  that,  applicants  might  have  no  connection 
with  the  association.  This  was,  therefore,  a  situation  in  which  the 
directors  merely  provided  an  exchange  room  for  the  brokers  and 
then  voted  the  profits  to  themselves  as  stockholders.  It  did  not  take 
the  brokers  long  to  realize  how  unprofitable  this  venture  was  for 
them,  and  consequently  they  set  about  finding  a  means  for  establish- 
ing an  exchange  more  to  their  liking. 

George  E.  Wright,  subsequently  first  secretary  of  the  present 
Chicago  Stock  Exchange,  went  about  the  city  obtaining  signatures 
to  the  written  statement  which  read:  "We,  the  undersigned,  hereby 
agree  to  form  a  mutual  association  of  brokers,  to  be  known  as  the 
Chicago  Stock  Exchange,  each  member  to  have  a  voice  in  the  man- 
agement and  an  interest  in  the  funds."  At  the  same  time  Edward 
L.  Brewster,  who  was  a  member  of  the  Xew  York  Stock  Exchange, 
went  east,  laid  the  project  before  the  Governing  Committee  of  that 
body,  and  was  extremely  successful  in  his  quest.  It  happened  that 
never  before  had  the  central  market  for  stocks  and  bonds  been  so 
flourishing  and  the  prospect  of  a  new  western  market  so  attractive. 
The  Governing  Committee  amended  its  rules  to  permit  members  of 
the  Xew  York  Stock  Exchange  to  join  the  new  Chicago  Stock  Ex- 


522  FINANCING  AN  EMPIRE 

change  and  gave  much  publicity  in  the  newspapers  and  elsewhere  to 
this  new  liberal  policy. 

With  this  aid  from  New  York,  the  Chicago  Stock  Exchange  burst 
into  existence  with  such  a  rush  of  popularity  as  to  be  almost  imme- 
diately embarrassed  by  more  memberships  than  it  could  manage. 
More  than  three  thousand  applicants  asked  for  admittance  during 
the  first  few  weeks.  It  therefore  became  necessary  to  discriminate 
among  these  most  carefully,  and  the  maximum  number  of  seven 
hundred  and  fifty  was  agreed  upon  and  reached  exactly  one  month 
after  the  first  formal  meeting  of  the  organization  had  been  held. 

The  first  meeting  of  Chicago's  fourth  attempt  at  establishing  a 
stock  exchange  was  held  on  the  afternoon  of  Tuesday,  March  21, 
1882,  in  the  Grain  and  Provision  Call  Board  Room  of  the  Chicago 
Board  of  Trade.  Charles  Henrotin  was  elected  chairman  and  George 
E.  Wright,  secretary.  The  following  Saturday  there  w7as  held  the 
first  meeting  of  all  the  signers  of  the  agreement  circulated  by  Mr. 
Wright,  when  there  were  chosen  the  first  permanent  officers  of  Chi- 
cago's present  Stock  Exchange.  Charles  Henrotin  wras  made  presi- 
dent, Albert  M.  Day,  first  vice-president,  Arthur  O.  Slaughter, 
second  vice-president,  and  William  A.  Hammond,  treasurer.  Also 
there  was  chosen  an  executive  committee  of  fifteen  which  included 
the  president,  two  vice-presidents,  and  secretary,  together  with  James 
B.  Ball,  George  D.  Boulton,  Jacob  B.  Breese,  Edward  L.  Brewster, 
William  O.  Cole,  R.  W.  Day,  Albert  Durham,  Henry  G.  Fore- 
man, Fred  G.  Frank,  Edward  S.  Hunt,  and  William  D.  Kerfoot. 

The  Exchange  leased  a  room  in  the  Grannis  Building  at  115 
Dearborn  Street,  which  it  proceeded  to  occupy  on  April  1.  Early  in 
May,  Joseph  R.  Wilkins  of  Philadelphia  was  appointed  chairman, 
a  position  he  had  filled  for  years  on  the  Philadelphia  Stock  Exchange 
and  one  which  he  was  destined  to  hold  in  Chicago  for  the  first  twenty- 
two  years  of  the  existence  of  the  institution.  About  the  same  time 
Edward  S.  Hunt  was  chosen  vice-chairman  and  G.  H.  Broadhead 
of  the  New  York  Stock  Exchange  was  invited  to  assist  at  the  sug- 
gestion of  one  hundred  and  fifty  members  of  both  exchanges.  This 
marked  the  beginning  of  cordial  relations  between  the  stock  ex- 
changes of  New  York  and  Chicago  which  were  destined  to  continue 
even  to  the  present  time. 

The  first  list  of  securities  wTas  adopted  on  May  13  and  contained 
one  hundred  and  thirty-four  items  of  which  eighty-two  were  bonds 
and  fifty-two  were  stocks.  No  mining  stocks  were  included.  Two 
days  later  the  new  exchange  rooms  were  opened  with  a  speech  by 


HISTORY  OF  BANKING  IN  ILLINOIS  523 

President  Henrotin  which  he  aptly  concluded  with  an  offer  to  sell. 
This  was  promptly  taken  up  by  Edward  L.  Brewster,  a  member  of 
the  committee  of  fifteen. 

Although  mining  stocks  were  not  included  in  the  first  listing, 
they  were  so  important  a  factor  at  the  time  that  they  were  traded 
in  actively  on  the  floor  of  the  new  Exchange,  although  the  main 
speculative  center  for  them  continued  to  be  San  Francisco.  To  avoid 
becoming  encumbered  with  an  undesirable  list,  and  yet  to  secure  one 
ample  for  its  purposes,  the  new  Exchange  made  a  listing  charge  of 
five  hundred  dollars.  The  only  bonds  dealt  in  actively  at  first  were 
governments  and  various  local  municipals.  Later  there  were  added 
those  of  many  local  industrial  concerns. 

The  mining  boom  was  almost  immediately  followed  by  tremen- 
dous activity  in  railway  shares  in  New  York.  This  trading  reached 
such  proportions  that  great  difficulty  was  had  in  making  deliveries 
of  actual  securities;  a  situation  which  the  railroads  met  by  issuing 
stock  certificates  in  denominations  as  low  as  fifty  dollars.  Thereafter 
the  emphasis  rapidly  shifted  from  mining  to  railway  shares.  The 
difficulty  of  securing  certificates  was  not  overcome  in  spite  of  every- 
thing the  railroads  could  do,  and  it  caused  so  much  trouble  on  the 
Chicago  Stock  Exchange  that  all  steam  railway  stocks  and  bonds 
had  to  be  stricken  from  the  list  in  1887,  never  again  to  be  dealt  in 
locally. 

The  wave  of  prosperity  on  which  the  new  Exchange  started  in 
1882  ebbed  rapidly,  until  in  1884  a  condition  of  panic  prevailed  and 
memberships,  which  had  been  selling  at  greatly  inflated  prices,  de- 
clined at  a  rate  that  appeared  serious  for  the  new  institution.  To 
save  the  situation,  dues  were  reduced  from  forty  dollars  to  twenty- 
five  and  in  1885  to  fifteen  dollars,  but  even  then  brokers  permitted 
their  memberships  to  lapse  for  non-payment  of  dues.  Attendance 
became  so  small  that  the  chairman  gave  up  calling  the  list  of  securi- 
ties and  for  many  months  no  regular  meetings  were  held.  In  March, 
1885,  one  hundred  and  thirty-nine  members  from  New  York  peti- 
tioned the  Governing  Committee  to  dissolve  the  Exchange  and  dis- 
tribute its  assets,  which  then  amounted  to  nearly  one  hundred  and 
ten  thousand  dollars  invested  in  interest-bearing  securities.  Hitherto 
it  had  been  this  fund  alone  which  had  held  the  Exchange  together, 
so  that  those  who  were  able  to  see  some  use  for  the  organization  after 
conditions  had  righted  themselves,  caused  the  petition  to  be  laid  on 
the  table. 


524  FINANCING  AN  EMPIRE 

In  1886  when  lapsed  memberships  could  not  be  sold  for  more 
than  twenty-five  or  thirty  dollars  each,  it  was  decided  that  if  the 
Exchange  could  not  provide  enough  business  for  a  large  member- 
ship, there  was  doubtless  enough  for  a  small  one  and  that,  for  the 
future,  memberships  should  be  reduced  to  that  point  where  each 
could  secure  a  maximum  of  good  from  the  organization.  Conse- 
quently in  May,  1887,  the  first  reduction  was  made  which  placed  the 
maximum  at  five  hundred  instead  of  the  original  seven  hundred  and 
fifty.  In  November,  1888,  another  reduction  brought  the  maximum 
down  to  four  hundred  and  twenty-five,  although  by  this  time  busi- 
ness had  begun  to  improve. 

The  year  1887  had  been  probably  the  most  discouraging  in  the 
whole  history  of  the  Chicago  Stock  Exchange.  In  April  of  that  year 
so  little  business  was  done  that  the  Western  Union  Telegraph  Com- 
pany removed  its  instruments  from  the  floor  of  the  Exchange,  while 
in  May  an  element  of  competition  was  added  by  the  introduction  of 
a  new  stock  exchange  connected  with  the  Board  of  Trade.  To  meet 
this  latter  factor,  the  Chicago  Stock  Exchange  reduced  its  dues  to 
twelve  dollars  a  year,  but  even  so,  at  the  annual  election  in  June  only 
twenty-five  votes  were  cast. 

These  difficulties,  however,  were  not  so  great  as  to  destroy  the 
confidence  of  the  management.  These  men  appreciated  that  the 
business  of  the  country  was  developing  at  a  rapid  rate  and  possibly 
they  understood  that  another  period  of  speculation  was  at  hand. 
Their  faith  was  justified,  for  almost  immediately  events  developed 
which  proved  that  Chicago  could  not  well  have  got  along  without  its 
own  stock  exchange.  The  turning  point  first  evidenced  itself  when 
the  Chicago  Gas,  Light  and  Coke  Company,  the  stock  of  which  had 
been  quoted  on  the  first  Exchange  more  than  thirty  years  before, 
found  itself  pressed  by  competition  to  consolidate  with  its  rivals.  To 
accomplish  this,  the  company  issued  twenty-five  million  dollars'  worth 
of  stock  and  a  corresponding  amount  of  bonds,  in  which  securities 
daily  trading  soon  rose  to  more  than  one  hundred  thousand  dollars. 
These  securities,  to  be  sure,  were  engineered  by  eastern  capital  and 
were  quoted  on  the  New  York  Stock  Exchange,  but  nevertheless, 
the  Chicago  Stock  Exchange  became  such  a  center  of  activity  for 
them  that  orders  even  from  the  Atlantic  coast  poured  into  the  offices 
of  local  brokers. 

Shortly  thereafter  methods  of  high  finance,  long  known  to  the 
east,  were  brought  into  the  middle  west  on  the  wave  of  speculation. 


HISTORY  OF  BANKING  IN  ILLINOIS  527 

With  it  came  also  Charles  T.  Yerkes  who  rose  to  prominence  in  1886 
in  his  promotion  of  the  North  Chicago  Street  Railway,  when  he  in- 
creased its  capital  from  five  hundred  thousand  to  five  million  dollars. 
Three  years  later  he  accomplished  a  like  expansion  for  the  West  Side 
Railway  System,  when  he  increased  its  capital  from  a  million  and  a 
quarter  to  ten  million,  issued  proportionate  amounts  of  bonds,  and 
made  a  fortune  for  himself. 

Thereafter  other  local  industries  came  into  popularity  in  waves 
of  expansion.  English  capital  flowed  into  the  city  to  finance  brew- 
eries, a  form  of  industiy  which  had  proved  very  profitable  in  Eng- 
land. There  came  expansion  in  other  lines,  financed  chiefly  by 
American  capital ;  this,  in  turn,  led  to  a  period  of  consolidations  form- 
ing trusts  such  as  the  Chicago  Packing  and  Provision  Company,  the 
Diamond  Match  Company,  Western  Stone  Company,  and  the  Ameri- 
can Straw  Board  Company.  All  caused  the  local  field  for  both 
investment  and  speculation  to  grow,  until  it  formed  a  substantial 
basis  for  the  business  of  brokers  who  attended  the  Exchange. 

In  May,  1890,  the  Western  Union  Telegraph  Company  per- 
ceived that  the  Exchange  was  no  longer  an  institution  without  a 
purpose  and  restored  its  instruments.  These  proved  to  yield  sufficient 
profit  to  encourage  the  company  to  install  a  ticker  a  year  later,  which 
was  taken  as  ample  proof  of  the  general  interest  then  existing  in 
local  stock  transactions.  Dues  began  to  rise,  first  to  fifteen  dollars 
in  1888,  to  thirty  dollars  in  1890,  and  in  1891  they  were  again  re- 
stored to  the  starting  point  of  forty  dollars  a  year. 

By  that  time  the  speculative  mania  had  reached  such  a  point  as 
to  cause  well  known  stocks  to  rise  and  fall  at  outrageous  rates.  Mem- 
berships recently  worth  but  twenty-five  dollars  each  now  sold  for  a 
thousand  or  eleven  hundred  dollars.  Nor  was  this  height  the  greatest 
to  be  attained  by  the  Chicago  Stock  Exchange  at  that  time.  On 
April  25,  1890,  Congress  passed  an  act  approving  the  World's 
Columbian  Exposition  to  be  held  in  Chicago  in  1892  and  1893,  which 
added  further  interest  to  the  local  situation.  Consequently  the  boom 
in  Chicago  increased  and  the  city  was  overwhelmed  with  prosperity 
at  a  time  when  the  remainder  of  the  country  trembled  on  the  verge 
of  hard  times.  Subsequently,  when  the  panic  became  so  intense  as 
to  cause  thousands  of  miles  of  railways  to  go  into  the  hands  of  re- 
ceivers, to  flood  the  markets  at  home  and  abroad  with  millions  of 
dollars'  worth  of  securities  to  be  sold  at  any  price  obtainable,  and 
when  banks  everywhere  were  failing,  the  World's  Fair  boom  con- 


528  FINANCING  AN  EMPIRE 

tinned  to  keep  Chicago  in  better  condition  than  any  other  section  and 
enabled  the  Chicago  Stock  Exchange  to  bear  up  admirably  under 
the  strain  put  upon  it.  Visitors  to  the  fair  poured  millions  in  money 
into  Chicago  and  local  affairs  in  general  profited. 

Benefits  of  the  World's  Fair  boom  in  Chicago  were  probably  more 
noticeable  in  their  effect  on  local  transportation  companies  than 
in  any  other  field.  These  companies  expanded  to  such  an  extent  in 
order  to  take  care  of  visitors  to  the  city  as  to  require  the  issue  of 
more  stocks  and  bonds,  all  of  which  were  actively  traded  in.  In  fact, 
affairs  became  such  that  larger  quarters  had  to  be  secured  for  the  Chi- 
cago Stock  Exchange,  and  in  the  midst  of  the  difficulties  of  1893  a 
building  committee  was  appointed  consisting  of  George  E.  Wright, 
who  had  been  the  first  Secretary  of  the  Exchange,  as  chairman;  Jacob 
B.  Breese,  for  five  years  a  governor;  and  Malcolm  M.  Jamieson, 
Edward  Koch,  Charles  Henrotin  and  Arthur  O.  Slaughter,  all  of 
whom  had  been  or  were  to  become  presidents. 

This  committee,  learning  that  a  new  building  was  to  be  erected 
on  the  property  belonging  to  the  Peck  Estate  at  La  Salle  and  Wash- 
ington streets,  in  a  district  apparently  away  from  the  center  of  busi- 
ness, went  to  the  managers  of  the  estate  and  to  neighboring  property 
holders,  and  persuaded  them  that  the  establishment  of  the  Chicago 
Stock  Exchange  in  that  vicinity  would  so  improve  the  district  as  to 
make  the  venture  profitable  on  any  terms  whatsoever.  Consequently, 
it  was  arranged  that  the  Peck  Estate  should  erect  a  new  twelve-story 
building  named  for  the  Exchange,  and  that  proper  space  within  it  be 
provided  for  that  organization  with  a  fifteen-year  lease  free  of  all 
charge.  This  agreement  was  signed  in  January,  1893,  for  a  term  of 
fifteen  years  at  a  price  of  one  dollar  a  year,  the  new  building  was 
erected  at  the  southwest  corner  of  Washington  and  LaSalle  streets, 
and  the  Exchange  moved  into  its  quarters  in  May,  1894,  with  fitting 
ceremonies.  There  it  remained  for  the  next  fourteen  years,  or  until 
it  moved  into  the  quarters  which  it  still  occupies  in  the  Rookery  build- 
ing. 

After  the  panic  of  1893,  and  probably  growing  out  of  it,  there  de- 
veloped a  great  period  of  consolidation,  which  brought  into  national 
prominence  the  names  of  men  such  as  J.  Pierpont  Morgan,  John  D. 
Rockefeller,  and  Edward  H.  Harriman.  One  of  these  consolidation 
schemes  which  played  an  extremely  important  part  in  the  history  of 
the  Chicago  Stock  Exchange  was,  according  to  Wallace  Rice  in  his 
history  of  that  organization,  "the  scene  of  a  one-act  play  in  consolida- 


HISTORY  OF  BANKING  IN  ILLINOIS  529 

tion  in  which  W.  II.  and  J.  II.  Moore,  who  had  been  members  since 
February  17,  1892,  were  the  chief  performers  and  the  subject  matter 
the  securities  of  the  Diamond  Match  Company,  listed  on  the  Ex- 
change on  November  2.5,  1891.  The  Moore  brothers  had  been  the 
chief  instruments  in  forming  the  combination  of  interests  grouped 
under  that  corporate  name,  as  well  as  those  in  New  York  Biscuit  and 
American  Tin  Plate — the  Moore  stocks — but  it  was  the  first  upon 
which  their  interest  largely  centered.  In  July,  1896,  about  the  time  a 
waiting  world  was  being  informed  that  calling  70  cents  worth  of  sil- 
ver a  dollar  Mould  cure  mankind  of  its  woes,  it  began  to  be  whispered 
about  that  France,  South  America,  and  other  habitable  portions  of 
the  globe  were  about  to  pay  the  Match  Company  various  large  sums 
for  the  use  of  its  patents,  and  somewhat  similar  tales  were  told  of  the 
New  York  Biscuit  concern.  These  stocks  became  active  to  the  point 
of  frenzy,  and  rose  to  unprecedented  figures.  It  appeared  later  that 
a  pool  had  been  formed  to  manipulate  20,000  shares  of  stock.  Mon- 
day, August  3,  lubrication  of  the  complicated  machinery  necessary 
failed  abruptly,  and  nothing  less  than  an  explosion  took  place. 

"That  evening  the  only  special,  or  other,  meeting  of  the  Govern- 
ing Committee  ever  held  outside  of  its  rooms,  convened  at  the  Prairie 
Avenue  residence  of  Philip  D.  Armour,  at  which  all  the  large  finan- 
cial and  other  interests  of  the  city  were  also  present  by  representation. 
It  was  a  solemn  time,  and  the  observation  of  Charles  T.  Yerkes,  'I 
have  never  seen  so  many  straw  hats  at  a  funeral,'  afforded  its  only 
lighter  moment.  It  was  decided  to  give  the  brokers  a  chance  to  read- 
just their  confused  affairs  outside  of  the  usual  and  sadly  interrupted 
methods,  and  it  was  moved  and  unanimously  carried  'that  the  Ex- 
change adjourn  at  10  o'clock  on  Tuesday  morning,  the  fourth  instant, 
and  remain  closed  pending  further  action  by  the  Committee.'  At  9:30 
that  morning  a  special  meeting  of  the  Exchange  ratified  this  and  the 
attempt  to  untangle  the  complicated  knots  began.  At  3  o'clock  the 
same  day  a  special  meeting  of  the  Governing  Committee  appointed  a 
select  committee,  consisting  of  President  Malcolm  M.  Jamieson, 
Philip  D.  Armour,  Albert  M.  Day,  and  Charles  C.  Yoe,  John  J. 
Mitchell  acting  with  them,  'to  confer  with  the  banks  and  the  Messrs. 
Moore  to  ascertain  what  settlement  could  be  made,'  President  Jamie- 
son  reporting  that  the  Moores  had  'appeared  very  willing  to  give  the 
Committee  any  information'  and  said  that  by  tomorrow  they  would 
give  a  full  statement  of  how  they  stood  on  the  market  in  both  Dia- 
mond Match  and  New  York  Biscuit  and  also  present  a  statement  of 


530  FINANCING  AN  EMPIRE 

the  condition  of  the  two  corporations.  August  12  the  Committee  re- 
ported an  agreement  already  prepared  'which  would  be  satisfactory 
to  all  parties  concerned.' 

"It  took  all  summer  to  straighten  out  the  tangle,  but  other  reasons 
advanced  themselves  to  keep  the  doors  of  the  Exchange  closed,  even 
after  it  became  certain  that  no  failures  were  to  follow  the  excitement. 
Something  more  than  a  ghost  of  Free  Silver  was  stalking  through  the 
land  during  the  pending  presidential  campaign,  and  it  was  no  time 
for  settled  or  even  for  speculative  values,  when  the  chance  of  the 
adoption  of  a  70-cent  dollar  might  suddenly  vitiate  every  conception 
upon  which  values  are  calculated.  Accordingly  it  was  not  until  two 
days  after  election  day,  when  Sixteen-to-One  had  ceased  to  be  an 
immediate  issue,  that  the  Exchange  reopened,  on  Thursday,  Novem- 
ber 5,  1896. 

"The  next  month  a  special  committee  on  reform  was  appointed 
and  measures  eventually  taken  that  make  any  such  exploitation  of 
the  privileges  of  the  Exchange  unlikely  in  the  future." 

Thereafter  until  the  outbreak  of  the  World  war  nothing  of  dis- 
turbing importance  was  to  occur  on  the  Chicago  Stock  Exchange. 
That  the  organization  continued  to  grow  and  prosper  was  evidenced 
by  the  move  into  its  present  quarters  in  the  Rookery,  at  209  South 
La  Salle  Street,  in  December,  1907,  and  the  constant  revisions  in  list- 
ings and  memberships  until  a  point  was  reached  where  memberships 
became  of  great  value  and  listings  could  be  made  only  by  companies 
capable  of  passing  a  most  rigid  and  searching  examination.  In  1904 
the  membership  limit  was  reduced  to  four  hundred,  a  reduction  of 
twenty- five  from  the  high  point  established  in  November,  1888.  Five 
years  later  a  sum  of  $15,000  was  appropriated  for  further  reduction 
in  the  membership  list  and  enough  were  bought  up  with  this  fund  to 
leave  the  outstanding  number  at  three  hundred.  In  May,  1910,  this 
was  further  reduced  to  250,  at  which  point  it  still  remains. 

Upon  the  outbreak  of  the  war  in  Europe  in  the  summer  of  1914, 
it  became  certain  that  such  large  volumes  of  American  securities  held 
abroad  would  be  suddenly  offered  on  American  markets  as  to  involve 
the  United  States  in  acute  financial  distress.  Leading  stock  ex- 
changes of  the  country,  realizing  that  in  their  hands  alone  lay  the 
remedy  for  this  situation,  cut  off  all  possibilities  for  a  great  financial 
disaster  from  this  source  by  closing  their  doors  for  an  indefinite  period. 
In  Chicago  regular  business  was  not  again  resumed  until  April  1, 
1915.    On  August  13,  1914,  however,  a  special  committee  on  trading 


HISTORY  OF  BANKING  IN  ILLINOIS  533 

was  appointed;  under  its  jurisdiction  a  plan  was  put  into  operation 
whereby  prices  were  fixed  at  quotations  ruling  at  the  time  of  closing 
as  a  minimum,  and  those  members  who  had  securities  to  buy  or  sell 
entered  upon  a  period  of  supervised  trading.  During  this  period  or- 
ders were  sent  to  the  secretary  of  the  Exchange  each  day  and  it  be- 
came his  duty  to  "match"  them  wherever  possible  under  the  super- 
vision of  the  committee  which  held  daily  sessions  for  that  purpose. 
Under  this  method,  as  is  to  be  expected,  business  dwindled  and  con- 
tinued to  fall  off  until  the  Exchange  was  opened  for  qualified  trad- 
ing on  November  25,  under  which  circumstances  only  necessary  trad- 
ing was  conducted  until  the  following  April,  when  conditions  were 
such  that  it  became  safe  to  remove  all  restrictions. 

By  that  time  the  middle  west  had  become  so  prominent  a  factor  in 
the  business  affairs  of  the  country  that  the  Chicago  Stock  Exchange 
was  everywhere  recognized  as  one  of  the  most  important  in  the  coun- 
try. In  1918  its  amount  of  business  definitely  passed  that  of  the  Stock 
Exchange  of  Philadelphia  and  in  1919  it  went  ahead  of  Boston,  thus 
placing  itself  in  a  position  second  only  to  the  Xew  York  Stock  Ex- 
change which  had  been  in  existence  for  ninety  years  before  the  Chi- 
cago Stock  Exchange  was  even  started. 

For  many  years  the  Chicago  Stock  Exchange  had  been  a  recog- 
nized leading  market  for  public  utility  securities,  but  in  1923  trading 
in  motor  accessories  stocks  increased  to  such  an  extent  among  its  list- 
ings that  Chicago  likewise  became  known  as  a  market  for  these  securi- 
ties. In  other  respects  also  the  year  1923  proved  to  be  one  of  the  most 
active  of  the  Exchange.  Business  was  so  great  in  that  year  as  to 
greatly  increase  both  the  number  of  listings  and  the  volume  of  sales 
over  other  years.  During  that  year  seat  sales  ranged  from  a  low  of 
$4,000  to  a  high  of  $9,000,  as  against  the  high  record  of  $10,000  in 
1919  and  a  low  of  $750  in  1914  and  1915.  At  the  time  of  this  writing, 
in  1925,  seats  are  selling  at  $5,900  and  limited  in  number  to  the  250 
set  in  May,  1910. 

The  year  1923  brought  a  record  turnover  in  shares  of  stock.  A 
total  of  13,337,361  changed  hands  that  year  as  against  10,849,173 
shares  in  1924.  In  bond  turnover,  however,  the  year  1924  held  the 
record  with  $22,604,900  as  against  only  $19,954,850  in  1923.  Dur- 
ing the  year  1924  securities  traded  in  amounted  to  an  aggregate  total 
wealth  of  almost  four  billion  dollars.  Some  one  hundred  and  forty 
companies  had  their  stocks  listed,  many  of  which  carried  bond  list- 
ings also,  and  the  list  showed  fifty-two  companies  offering  bonds  alone. 


534  FINANCING  AN  EMPIRE 

In  1925  the  Chicago  Stock  Exchange  established  a  new  high  rec- 
ord of  transactions,  even  exceeding  the  previous  extreme  record  of 
1923.  More  than  14,100,000  shares  were  handled.  At  the  same  time 
listings  in  stocks  of  stated  par  value  declined  somewhat,  but  this  was 
more  than  compensated  for  by  greatly  increased  listings  of  issues  hav- 
ing no  par  value.  Bond  transactions  also  declined,  but  this  was  due 
to  the  fact  that  government  bond  trading  was  discontinued  locally. 
Stock  and  bond  sales  throughout  the  history  of  the  Exchange  since 
the  year  1899  are  displayed  in  the  following  table: — 

CHICAGO  STOCK  EXCHANGE  BUSINESS  RECORD 

Total  Shares  of  Total  Par  Value 

Stock  Sold  Bonds  Sold 

1899 3,477,738  $12,253,600 

1900 1,418,738  8,362,600 

1901  1,886,038  9,427,800 

1902 1,367,967  9,048,100 

1903 1,013,780  3,438,500 

1904 1,318,126  5,881,700 

1905 1,544,319  9,567,500 

1906 1,234,537  5,858,050 

1907 817,164  4,566,100 

1908 830,087  15,264,000 

1909 1,623,495  14,800,000 

1910 894,362  7,347,000 

1911  1,049,068  14,752,000 

1912 1,174,931  13,757,000 

1913 1,101,417  9,392,000 

1914 375,274  9,071,000 

1915 713,557  9,316,100 

1916 1,610,417  11,932,300 

1917 1,701,245  8,368,950 

1918 2,032,392  5,305,000 

1919 7,308,855  5,672,600 

1920 7,367,441  4,652,400 

1921  5,165,972  4,170,450 

1922 9,145,205  10,028,200 

1923 13,337,361  19,954,850 

1924 10,849,173  22,604,900 

1925 14,102,892  8,748,300 

{The  Wall  Street  Journal,  January  7,  1924.) 


HISTORY  OF  BANKING  IN  ILLINOIS  535 

No  security  is  accepted  for  listing  on  the  Chicago  Stock  Exchange 
until  the  Committee  on  Stock  List  is  satisfied  of  the  good  faith  and 
integrity  of  the  management  of  the  company  issuing  that  security. 
The  legitimacy  of  its  business,  the  soundness  of  its  financial  plans, 
and  its  earning  power  for  not  less  than  a  year  are  all  points  upon 
which  the  committee  must  become  satisfied.  Next  it  must  make  cer- 
tain that  a  sufficient  amount  of  the  stock  has  been  sold  to  the  general 
public  to  prevent  improper  manipulation.  The  company  then  agrees 
to  publish  financial  statements  at  least  once  each  year  and  as  much 
oftener  as  the  Exchange  may  require.  Thus,  through  competition  of 
the  greatest  possible  number  of  buyers,  a  broad  and  open  market  is 
assured  in  which  both  buyer  and  seller  can  be  certain  that  their  trans- 
actions have  been  made  at  the  best  possible  price. 

Virtually  every  form  of  industry  is  represented  in  the  stock  and 
bonds  listed.  Telephone  and  telegraph,  electric  power,  transportation 
lines,  and  other  public  utilities  lead  the  list,  with  electric  light  stocks 
second  and  packing-house  issues  third.  Motors  hold  a  prominent 
place,  and  among  the  other  issues  traded  in  are  found  sugar  refining, 
clothing,  mail  order  houses,  chemical  houses,  and  many  others. 


CHAPTER  XXX 
INVESTMENT  BANKING  IN  CHICAGO 

Mortgage  market  established  as  early  as  1835 — Investment  bond  houses  started  about 
1882 — First  issue  made  payable  in  Chicago,  1892 — Chicago  investment  houses  in 
other  cities — Those  still  in  existence  representing  outgrowths  of  two  original  houses 
— Early  efforts  to  develop  a  bond  market — Cattle  paper — Farm  loan  securities — 
Customer  ownership  plan. 

The  investment  business  always  follows  the  completion  of  the  de- 
velopment of  commerce  and  manufacturing  in  a  new  community.  In 
such  places  there  is  seldom  money  available  for  securities  as  all  money 
there,  and  as  much  as  can  be  borrowed  from  the  outside,  must  go  into 
the  promotion  of  new  projects. 

The  development  of  Chicago  has  come  so  recently  that  until  the 
last  few  years  there  has  been  no  class  depending  on  an  income 
from  bonds.  Such  income  as  the  citizens  of  Chicago  had,  was  re-in- 
vested, rather,  in  those  businesses  originally  producing  it.  Only 
within  the  last  two  decades,  as  the  older  generation  which  built  up 
the  city  has  been  dying  out,  has  the  investment  business  developed  to 
any  great  extent.  Prior  to  that  time  large  estates  were  held  together 
and  kept  in  the  industries  which  produced  them.  Now,  however,  as 
they  are  being  divided  among  children  and  grandchildren,  these  seem 
to  show  a  growing  tendency  to  transfer  their  principal  from  its  source 
to  the  more  convenient  investment  which  requires  a  minimum  of  per- 
sonal responsibility  on  the  part  of  the  owner. 

Although  Chicago  in  her  earlier  days  offered  no  considerable  mar- 
ket for  the  sale  of  investment  securities,  she  did  produce  ample  source 
of  supply  for  other  markets.  As  early  as  1835,  Francis  B.  Peabody, 
a  lawyer,  found  himself  so  beset  with  clients  from  the  east  who  de- 
sired him  to  invest  their  money  in  Chicago  real  estate  mortgages,  that 
lie  abandoned  his  law  practice  and  entered  into  the  business  of  mort- 
gage banking.  In  his  undertaking  he  found  great  profit,  as  eastern 
capital  constantly  poured  into  his  office  to  be  invested  in  mortgages 

536 


HISTORY  OF  BANKING  IN  ILLINOIS  537 

on  which  the  interest  rate  was  uniformly  ten  per  cent.  Ten  years 
later  Mr.  Peabody  took  in  a  partner,  forming  the  firm  of  Peabody, 
Houghteling  and  Company,  under  which  title  there  still  operates  an 
investment  house  in  Chicago. 

Mortgage  houses  found  sufficient  business  to  warrant  their  estab- 
lishment in  comparatively  large  numbers  during  the  early  days  of 
the  history  of  Chicago ;  but  the  investment  bond  business  as  we  know 
it  today  was  not  established  here  until  the  early  eighties,  and  even 
then  for  the  first  ten  or  more  years  this  depended  chiefly  on  securi- 
ties purchased  in  the  west  and  marketed  in  the  east. 

The  first  strictly  investment  bond  houses  in  Chicago  were  estab- 
lished about  the  year  1882.  In  that  year  Norman  W.  Harris  arrived 
in  the  city  from  Cincinnati  and  started  the  firm  of  N.  W.  Harris  and 
Company  with  three  employees.  At  about  the  same  time  Preston, 
Kean  and  Company,  for  some  years  a  private  bank,  entered  into  the 
investment  field  as  S.  A.  Kean  and  Company,  and  for  a  time  these 
two  constituted  the  only  investment  banking  houses  in  Chicago. 
These  houses  purchased  bonds  all  over  the  west  and  south  and  sold 
them  largely  in  the  east,  although  a  small  amount  were  disposed  of 
in  Chicago  to  banks,  insurance  companies,  and  estates. 

Many  of  the  bonds  purchased  at  the  time  were  the  issues  of  cities, 
towns,  and  states.  Unlike  the  present  day,  municipal  issues  back  in 
the  eighties  were  not  purchased  by  mail  and  wire,  but  instead  it  was 
necessary  for  the  investment  house  desiring  to  secure  any  of  them  to 
have  a  man  on  the  ground.  Consequently  each  of  Chicago's  invest- 
ment houses  kept  a  man  in  the  field  for,  this  purpose.  A.  W.  Harris, 
son  of  the  founder  of  N.  W.  Harris  and  Company,  represented  that 
house,  while  the  house  of  S.  A.  Kean  and  Company  was  represented 
by  F.  W.  Leach,  later  of  the  firm  of  A.  B.  Leach  and  Company. 
Since  both  houses  usually  bid  for  the  same  bonds,  as  both  were  always 
seeking  the  best  investments  their  territory  had  to  offer,  Mr.  Harris 
and  Mr.  Leach  traveled  together  for  many  years.  They  were  then 
the  only  bond  men  representing  Chicago  and  they  acted  in  the  ca- 
pacity of  both  buyers  and  salesmen.  Transportation  in  those  days 
was  not  as  adequate  as  now  and  these  men  tell  of  leaving  Chicago 
with  the  intention  of  visiting  a  certain  western  city  for  a  day  or  two, 
receiving  a  wire  telling  them  to  travel  on  to  another  where  new  bonds 
were  about  to  be  offered,  and  so  on,  until  at  times  it  would  be  as  much 
as  four  months  before  they  were  able  to  return  to  their  starting 
point. 


538  FINANCING  AN  EMPIRE 

Since  even  in  those  days  investments  had  been  exploited  to  a  large 
extent,  much  to  the  detriment  of  investors,  it  was  the  aim  of  both  of 
Chicago's  houses  to  offer  only  those  securities  which  their  own  per- 
sonal investigations  showed  to  be  of  the  highest  class.  Both  Mr.  Har- 
ris and  Mr.  Kean  were  known  for  their  rigid  scruples.  In  his  youth, 
Mr.  Harris  went  without  a  much  coveted  college  education  because, 
just  as  he  had  saved  enough  money  to  pay  his  way,  his  partner  in 
business  made  away  with  some  of  the  firm's  funds  and,  although  Mr. 
Harris  was  under  age  and  therefore  not  liable,  he  paid  the  deficit 
which  took  all  of  his  savings. 

Mr.  Kean's  insistence  on  doing  the  right  thing  amounted  at  times 
almost  to  bigotry.  According  to  early  histories  of  Chicago,  his  name 
headed  practically  every  important  charity  list,  and  those  who  know 
Mr.  Kean  say  that  he  gave  generously  with  no  expectation  or  desire 
of  receiving  the  glory  of  publicity  for  himself  in  return.  In  every 
matter  he  undertook  he  let  his  conscience  be  his  guide;  he  even  went 
so  far  as  to  open  his  business  each  morning  with  prayer  and  installed 
a  small  organ  in  the  back  room  of  his  office  to  assist  in  conducting 
daily  religious  services  to  which  his  employees  were  invited,  but  not 
required  to  attend. 

Before  long  S.  A.  Kean  took  John  Farson  into  partnership  and 
those  two  men  continued  to  conduct  the  business  until  1889,  when 
Farson  withdrew  to  form  the  firm  of  Farson,  Leach  and  Company, 
in  which  A.  B.  Leach,  a  brother  of  the  man  who  had  been  traveling 
for  Kean,  was  one  of  the  partners.  Kean  continued  his  business  un- 
til the  early  nineties  when  he  went  into  bankruptcy.  His  idiosyncra- 
sies naturally  subjected  him  to  the  evil  tongue  of  gossip  and  it  was 
rumored  that  his  religious  demonstrations  had  been  only  for  the  pur- 
pose of  covering  up  dishonesties.  His  friends,  however,  and  those 
people  who  knew  him  best  insisted  that  such  blame  as  was  due  him 
at  the  time  of  his  failure  came  as  a  result  of  Kean's  extreme  gen- 
erosity, which  led  him  to  give  to  every  needy  individual  or  cause  so 
long  as  he  had  anything  to  give.  Had  he  been  less  generous,  they 
said,  he  would  in  all  probability  have  had  sufficient  funds  to  meet  tin 
crisis  that  brought  his  downfall. 

The  house  of  N.  W.  Harris  and  Company  succeeded  in  maintain- 
ing and  strengthening  its  reputation  for  offering  only  the  soundest 
of  securities,  so  that,  even  today  one  may  hear  small  bond  dealers 
throughout  the  country  saying  to  their  customers,  "You  may  put  your 
faith  in  this  bond  for  it  is  a  Harris  issue." 


HISTORY  OF  BANKING  IN  ILLINOIS  539 

In  those  days  the  buying  of  bonds  in  the  west  was  so  rare  that  it 
became  necessary  for  bond  houses  to  send  out  men  for  the  purpose 
of  educating  people  of  wealth  in  this  type  of  investment.  Such  pio- 
neering educators  would  make  no  effort  to  sell,  but  simply  to  pave 
the  way  for  later  sales. 

By  the  year  1892  this  educational  effort  had  proved  effective  to 
such  an  extent  that  the  Sanitary  District  of  Chicago  was  emboldened 
to  issue  two  million  dollars'  worth  of  bonds,  the  principal  and  interest 
on  which  were  made  payable  in  Chicago.  Prior  to  that  time  all  bonds 
issued  in  the  middle  west  had  been  made  payable  in  New  York.  Now, 
however,  those  responsible  for  this  issue  were  of  the  opinion  that  Chi- 
cago and  the  surrounding  territory  were  ready  to  take  a  fair  propor- 
tion of  the  bonds,  and  believed  that  making  them  payable  in  Chicago 
would  encourage  investors  in  the  middle  west  to  support  the  issue. 

When  the  bonds  were  offered,  bankers  from  New  York  protested 
loudly.  They  maintained  that  if  the  bonds  were  made  payable  in 
Chicago  they  could  not  be  sold  in  New  York  and  elsewhere  at  as  high 
a  price  as  they  might  otherwise  command.  Nevertheless,  the  finance 
committee  stood  firm  and  insisted  that  if  the  bonds  were  sold  at  all 
it  would  be  with  the  provision  that  principal  and  interest  were  made 
payable  in  Chicago.  Next,  New  York  bankers  announced  that  they 
would  not  bid  for  such  bonds,  and  the  Chicago  committee  came  back 
with  the  argument  that  doubtless  the  entire  issue  could  be  placed  in 
the  middle  west.  So,  ignoring  all  warnings,  the  committee  advertised 
the  bonds  for  sale,  principal  and  interest  to  be  made  payable  in  Chi- 
cago; and  in  spite  of  all  that  had  been  said,  bids  came  in  as  usual.  The 
highest  was  made  by  Blair  and  Company,  a  New  York  house,  and 
this  company  was  awarded  the  entire  issue  at  par  plus  a  premium  of 
$30,2.50.  After  the  award  was  made,  Blair  and  Company  made  every 
effort  to  persuade  the  committee  to  change  its  ruling  and  permit  the 
principal  and  interest  to  be  paid  in  New  York.  The  committee,  how- 
ever, refused  and  Blair  and  Company  took  the  issue  under  protest. 

The  issue  was  sold,  apparently  with  no  greater  effort,  and  cer- 
tainly at  no  smaller  price  than  one  drawn  up  in  accordance  with  the 
wishes  of  the  bankers  of  New  York.  Thus  was  brought  about  Chi- 
cago's first  success  in  making  her  own  financing  payable  in  Chicago. 
Thereafter  this  method  became  customary  and  before  long  not  only 
the  bonds  of  the  City  of  Chicago,  but  those  of  other  middle  western 
communities  as  well,  were  made  payable  in  the  city  which  became 
recognized  as  the  banking  center  of  the  middle  west.     Immediately 


540  FINANCING  AN  EMPIRE 

after  this  incident,  Chicago  likewise  came  to  be  known  as  a  growing 
center  of  investment  banking  and  from  then  on  the  establishment  of 
bond  houses  in  the  city  increased  at  a  rapid  rate. 

Just  before  this  time  N.  W.  Harris  and  Company  had  established 
an  office  in  New  York  and  also  one  in  Boston,  both  of  which  are  now- 
known  as  Harris,  Forbes  and  Company.  These  eastern  offices  served 
as  an  outlet  for  the  securities  purchased  in  large  quantities  in  all  parts 
of  the  west.  Municipalities,  public  utilities,  and  other  undertakings 
as  far  west  as  Seattle  were  financed  by  these  offices.  Then,  as  busi- 
ness in  the  west  grew,  Chicago's  original  bond  houses  became  the  indi- 
rect authors  of  new  investment  houses  originated  by  employees  of  the 
older  companies. 

N.  W.  Halsey  was  employed  by  the  New  York  office  of  Harris, 
Forbes  and  Company.  In  time  he  went  into  partnership  with  Har- 
old L.  Stuart,  who  was  in  the  Chicago  office  of  N.  \Y.  Harris  and 
Company,  and  these  men  established  the  firm  known  as  N.  W.  Halsey 
and  Company  with  offices  in  both  New  York  and  Chicago.  Upon  the 
death  of  Mr.  Halsev,  his  estate  sold  his  interest  in  the  firm  to  the  Na- 
tional  City  Bank  of  New  York  which  then  established  the  National 
City  Company,  an  investment  organization  of  present  national  scope. 
Mr.  Stuart  then  confined  his  share  of  the  business  to  the  Chicago  of- 
fice, the  name  of  which  he  changed  to  Halsey,  Stuart  and  Company. 
This  organization  has  likewise  since  grown  to  assume  national  pro- 
portions. 

From  the  house  of  S.  A.  Kean  and  Company  there  grew,  as  has 
been  mentioned  above,  the  firm  of  Farson,  Leach  and  Company 
which  was  dissolved  in  1906  to  form  the  firms  of  A.  B.  Leach  and 
Company  and  John  Farson  and  Son.  The  former  house  still  main- 
tains its  principal  office  in  Chicago  with  brandies  located  in  cities  all 
over  the  United  States.  John  Farson  and  Son  operated  in  Chicago 
for  a  number  of  years  and  then  moved  to  New  York,  from  which 
center  it  still  conducts  an  investment  business. 

In  the  early  days,  bond  houses  in  Chicago  had  to  give  a  great  deal 
of  time  and  attention  to  the  drafting  of  laws  and  even  amendments 
to  state  constitutions,  which  might  throw  a  greater  security  about 
the  issuing  of  municipal  bonds  and  thereby  enable  municipalities  t<> 
establish  a  credit  permitting  them  to  market  their  securities  in  amounts 
commensurate  with  their  requirements.  Along  with  those  of  other 
western  states,  the  bonds  of  Illinois  found  some  difficulty  in  securing 
adequate  markets,  because  the  state's  debt  history,  although  honor- 


HISTORY  OF  BANKING  IN  ILLINOIS  541 

able,  had  been  greatly  troubled.  In  1844  the  governor  stated  that  the 
state's  total  debt,  including  interest,  was  $14,440,381.  Illinois  was 
then  unable  to  meet  its  payments  and  a  few  years  later  levied  taxes  to 
care  for  the  interest  on  this  amount.  In  time  portions  of  the  principal 
obligations  were  discharged;  on  January  1,  1857,  the  governor  de- 
clared that  during  the  past  four  years  $4,564,800.40  had  been  paid 
in  liquidation  of  interest  and  principal  on  the  public  debt.  By  1870 
the  state  had  succeeded  in  getting  entirely  out  of  debt  and  a  new 
period  of  borrowing  was  not  begun  until  1921.  In  1925  there  was 
not  outstanding  any  bonded  debt  of  the  state  drawing  interest  which 
had  been  issued  prior  to  1921  and  practically  all  of  the  then  existing 
debt  consisted  of  highway  and  soldiers'  bonus  bonds;  these  bonds 
were  quoted  in  1925  to  yield  about  4.10  per  cent  in  net  income. 

During  the  panic  of  1893  the  bond  houses  of  Chicago  had  their 
first  opportunity  to  be  of  assistance  by  supplying  the  banks  with 
much  needed  cash.  X.  W.  Harris  and  Company  alone  supplied  many 
millions  of  dollars  by  means  of  taking  reserve  bonds  off  the  hands  of 
the  banks  and  selling  them  on  markets  still  open  to  such  investment. 
This  service  was  repeated  in  the  panic  of  1907,  and  after  the  San 
Francisco  fire  this  house  and  others  purchased  large  quantities  of 
bonds  from  insurance  companies  having  agencies  in  San  Francisco. 
One  company  had  so  large  a  supply  of  bonds  which  it  sold  to  N.  W. 
Harris  and  Company  at  that  time  as  to  pay  practically  its  entire 
losses  out  of  funds  supplied  by  the  Chicago  house. 

The  big  development  in  the  field  of  investment  banking  in  Chi- 
cago dates  from  1910,  while  the  greatest  of  all  came  after  1920,  when 
the  volume  of  such  business  grew  to  from  three  to  five  times  what  it 
had  been  ten  years  earlier.  This  great  development  has  come  largely 
as  a  result  of  an  increase  of  wealth  during  the  war  and  the  interest 
in  bonds  fostered  by  the  flotation  of  liberty  bond  issues.  The  early 
nineties  brought  the  investment  business  up  to  sizable  proportions  for 
the  first  time  in  the  history  of  Chicago,  and  in  the  boom  period  fol- 
lowing McKinley's  election  in  1896,  there  came  an  expansion  in  the 
sale  of  securities  which  brought  the  city  so  strongly  to  the  notice  of 
eastern  bond  houses  that  a  large  number  of  them  opened  offices  in  Chi- 
cago during  the  decade  between  1900  and  1910. 

At  the  beginning  of  the  year  1904  there  were  only  ten  strictly 
investment  bond  houses  and  not  more  than  thirty  bankers  and  brokers 
who  did  a  considerable  bond  business  in  the  city.  Only  about  five  of 
the  forty  incorporated  banks  in  Chicago  at  that  time  operated  bond 


542  FINANCING  AN  EMPIRE 

departments.  In  1924,  on  the  other  hand,  at  least  six  hundred  invest- 
ment banking  houses  or  individual  investment  bankers  were  operat- 
ing within  the  limits  of  the  city  and,  in  addition,  nearly  one  hundred 
banks  were  operating  departments  for  the  sale  of  securities.  Thus, 
from  the  comparatively  small  beginnings  of  men  like  Harris,  Leach, 
and  Halsey  in  the  period  before  the  opening  of  the  twentieth  cen- 
tury, there  has  developed  a  business  which  is  now  selling  a  total  of 
investment  securities  to  private  investors  in  the  Chicago  district  alone 
amounting  to  an  almost  unbelievable  figure. 

The  first  attempt  on  the  part  of  Chicago's  bankers  to  underwrite 
an  issue  of  bonds  in  a  sizable  amount  came  in  1918,  when  forty  mil- 
lion dollars'  worth  of  Armour  and  Company's  six  per  cent  serial 
debentures  were  issued  by  Chicago  firms  with  a  Chicago  bank  acting 
as  trustee.  Back  in  1914  there  had  been  issued  ten  million  dollars' 
worth  of  Swift  and  Company's  first  mortgage  five  per  cent  bonds, 
which  was  the  largest  amount  known  in  the  west  up  to  that  time.  In 
fact,  this  issue  was  of  more  importance  than  it  might  now  seem,  for  be- 
fore the  war  a  ten  million  dollar  loan  was  considered  large  even  in 
the  east.  Chicago,  however,  has  since  reached  a  place  where  single 
deals  amounting  to  between  fifty  and  one  hundred  million  dollars 
might  be  efficiently  handled.  Year  in  and  year  out  the  financing  of 
the  Insull  properties  by  Halsey,  Stuart  and  Company  probably  rep- 
resents the  greatest  single  operation  of  Chicago's  bankers.  In  1924 
this  financing  aggregated  nearly  seventy  million  dollars.  That  same 
year  public  utility  and  industrial  bonds  of  various  kinds  originating  in 
Chicago  amounted  in  all  to  approximately  three  hundred  million  dol- 
lars, while  real  estate  mortgage  bonds  and  municipals  and  joint  stock 
land  bank  issues  aggregated  another  two  hundred  million  dollars.  In 
all,  more  than  one-half  billion  dollars'  worth  of  securities  of  an  invest- 
ment character  were  originated  in  the  City  of  Chicago  in  a  single 
year,  and  in  addition  the  bankers  of  Chicago  participated  heavily  in 
issues  originating  in  the  east.  At  the  end  of  1925  it  was  estimated 
that  corporate  financing  in  the  entire  United  States  was  at  the  rate 
of  about  five  billion  dollars  each  year.  About  four  billion  of  this  was 
done  in  New  York  City  of  which,  in  turn,  about  one  billion  was  taken 
care  of  in  Chicago.  Thus,  at  least  one  quarter  of  New  York's 
financing  was  at  that  time  being  done  with  Chicago's  money. 

In  addition  to  having  become  one  of  the  prominent  investment 
securities  markets  of  the  country,  Chicago's  strategic  position  in  the 
center  of  the  most  fertile  farming  sections  of  the  middle  west  has 


HISTORY  OF  BANKING  IN  ILLINOIS  543 

enabled  that  city  to  provide  the  chief  market  in  the  country  for  cat- 
tle paj)er  and  farm  loan  securities.  The  market  for  cattle  paper  has 
come  to  Chicago  partly  because  cattle  are  not  raised  in  districts  con- 
taining banks  of  sufficient  size  to  be  able  to  make  loans  of  any  sizable 
amount,  and  partly  because  Chicago  has  become  the  great  market  for 
the  sale  of  cattle,  while  the  remainder  of  the  state  of  Illinois  plays  an 
important  part  in  preparing  steers  for  that  market.  As  cattle  come 
from  western  ranches,  they  are  not  usually  ready  for  the  production 
of  prime  beef,  but  must  first  be  subjected  to  a  period  of  feeding 
in  which  the  corn  of  Illinois  plays  a  prominent  part;  thus,  cattle  for 
the  markets  come  not  directly  from  western  ranches,  but  rather  from 
the  farms  of  Illinois  and  Iowa.  Under  such  circumstances  it  is  no 
doubt  logical  that,  even  were  Chicago  not  the  second  financial  center 
in  the  country,  cattle  financing  would  still  gravitate  in  large  amount 
to  that  city. 

That  Chicago  should  likewise  be  a  chief  center  for  the  sale  of 
farm  loan  securities  is  even  less  difficult  to  understand,  for  Chicago 
is  located  in  one  of  the  most  fertile  farming  states  of  the  rich  middle 
west  and  is  surrounded  by  a  territory  known  as  the  "breadbasket  of 
the  world." 

Farm  loans  have  in  recent  years  been  taken  under  the  supervi- 
sion of  the  United  States  government  through  the  establishment  of 
two  distinct  types  of  loaning  organizations  provided  in  an  act  passed 
by  Congress  in  1916.  Prior  to  that  date  these  loans  were  taken  care 
of  by  private  mortgage  companies  which  purchased  farm  mortgages 
and  then  sold  them  in  their  entirety.  In  the  city  of  Chicago  there 
developed  a  large  number  of  mortgage  houses  specializing  in  loans  to 
farmers  in  the  surrounding  territory. 

The  act  of  1916,  however,  made  possible  through  the  organiza- 
tion of  Federal  Land  Banks  and  Joint  Stock  Land  Banks  the  pur- 
chase of  farm  mortgages  in  larger  quantities.  It  then  became  cus- 
tomary to  issue  bonds  against  these  mortgages  and  thereby  distribute 
them  among  a  larger  purchasing  clientele  in  a  form  convenient  for 
both  buyer  and  seller. 

This  new  type  of  farm  mortgage  bond,  which  has  come  into  great 
popularity  in  the  middle  west,  when  secured  by  Illinois  land  is  of- 
fered by  the  Federal  Land  bank  located  at  St.  Louis.  Under  the  act 
of  1916  the  whole  country  is  divided  into  twelve  Federal  Land  bank 
districts,  corresponding  roughly  to  the  twelve  Federal  Reserve  dis- 
tricts, and  each  of  these  is  served  by  a  single  Federal  Land  bank, 


544  FINANCING  AN  EMPIRE 

operated  under  federal  control  on  a  mutual  plan  whereby  the  fanners 
borrowing  from  it  may  acquire  a  stock  ownership.  The  St.  Louis 
bank  covers  a  territory  including  the  states  of  Illinois,  Missouri,  and 
Arkansas. 

The  Federal  Land  banks  were  originated  for  the  purpose  of  cater- 
ing primarily  to  the  small  farm  borrower  and  are  allowed  to  make  no 
loan  larger  than  ten  thousand  dollars  to  a  single  customer.  Conse- 
quently, these  banks  more  and  more  serve  the  poorer  farming  dis- 
tricts in  sections  where  it  would  not  be  to  the  advantage  of  private 
interests  to  risk  their  capital  on  farms  of  doubtful  producing  power. 
Thus,  it  will  be  seen,  the  Federal  Land  banks  perform  a  distinct 
service  in  building  up  poorer  territories  and  in  improving  to  the  ut- 
most farms  that  otherwise  might  be  permitted  to  go  to  waste. 

The  second  type  of  institution,  also  under  government  super- 
vision, which  serves  the  farms  of  the  country,  is  known  as  the  Joint 
Stock  Land  bank,  and  in  the  system  as  a  whole,  these  banks,  which 
are  all  owned  privately,  correspond  to  the  country's  national  banks. 
These  banks  are  not  so  limited  in  the  size  of  loans  they  may  make  to 
a  single  individual  and  are  therefore  able  to  be  of  assistance  to  agri- 
cultural men  developing  the  country  on  a  large  scale.  Under  the 
act  of  1916,  no  limit  was  placed  on  the  amount  of  a  single  loan  that 
might  be  made  by  a  Joint  Stock  Land  bank,  except  that  no  bank 
might  issue  a  total  of  bonds  in  excess  of  fifteen  times  its  capital  and 
surplus.  Its  board,  however,  had  set  fifty  thousand  dollars  as  the 
arbitrary  figure  beyond  which  no  Joint  Stock  Land  bank  might  go  in 
making  an  individual  loan. 

Under  the  requirements  of  the  act,  Joint  Stock  Land  banks  must 
have  a  capital  stock  of  at  least  $250,000,  one-half  of  which  must  be 
paid  up  in  cash  and  the  remainder  subject  to  call.  Such  mortgages  and 
notes  as  they  own,  against  which  they  wish  to  issue  bonds,  must  be 
deposited  with  the  registrar  appointed  by  the  federal  farm  loan  board 
for  the  district  and,  even  then,  the  issue  of  bonds  can  be  made  only 
after  the  approval  of  the  board  is  secured.  Federal  Land  banks,  on 
the  other  hand,  are  permitted  to  issue  bonds  up  to  an  amount  of 
twenty  times  their  capital  and  surplus. 

As  is  to  be  expected,  in  the  richer  farming  districts  the  Joint 
Stock  Land  banks  have  gone  ahead  of  the  Federal  Land  banks  in 
the  amount  of  loans  made,  while  in  poorer  sections  the  opposite  is 
true.  In  the  New  England  states,  Florida,  New  Mexico,  and  Dela- 
ware, for  instance,  where  farming  is  not  the  most  important  industry, 


HISTORY  OF  BANKING  IN  ILLINOIS  545 

there  are  no  Joint  Stoek  Land  banks.  In  New  York,  where  agri- 
culture plays  a  fairly  important  part,  Federal  Land  banks  from  the 
time  of  their  organization  until  the  end  of  August,  1925,  have  made 
loans  amounting  to  $19,345,840,  while  Joint  Stock  Land  banks  in  the 
same  period  have  loaned  $6,369,400. 

As  one  goes  into  the  more  important  agricultural  districts  he  is 
impressed  by  the  larger  size  of  loans  made  by  the  Joint  Stock  Land 
banks.  Illinois  is  one  of  the  greatest  and  richest  agricultural  states. 
For  much  of  its  area  the  soil  is  known  as  the  "flat  black  corn  lands," 
which  comprise  a  part  of  the  most  fertile  and  productive  area  in  the 
Mississippi  Valley.  Illinois,  second  only  to  Iowa  in  the  amount  of 
corn,  oats,  and  hogs,  ranking  third  in  the  production  of  beef,  and 
further  favored  as  a  state  of  highly  diversified  farming,  is  neverthe- 
less not  a  state  uniformly  rich.  Its  southern  sections  are  not  as  pro- 
ductive as  are  the  northern  and  central  parts.  Consequently,  in  Illi- 
nois one  finds  the  Joint  Stock  Land  banks  located  in  the  north  and 
central  parts.  Since  its  organization  the  Federal  Land  bank,  located 
at  St.  Louis,  has  made  only  5,655  loans  amounting  in  all  to 
$26,002,305,  while  the  Joint  Stock  Land  banks  in  the  state  have 
made  7,493  loans  amounting  to  $64,650,245.  Only  Iowa  with  total 
loans  by  both  kinds  of  banks  amounting  to  $159,627,095  and  Texas 
with  $173,983,452,  exceed  Illinois  in  aggregate  amount  of  $90,652,550. 
In  Iowa  alone  have  Joint  Stock  Land  banks  made  a  total  of  loans  in 
excess  of  those  made  in  Illinois. 

One  can  appreciate  the  great  value  of  these  farm  loan  banks 
sponsored  by  the  government  when  he  realizes  that  in  Illinois  the 
average  value  of  farm  land  an  acre,  together  with  its  buildings,  has 
increased  from  $7.99  in  1850  to  $19.56  in  1860;  $28.45  in  1870; 
$31.87  in  1880;  $41.51  in  1890;  $53.84  in  1900;  $108.32  in  1910; 
and  $187.59  in  1920.  In  the  United  States  as  a  whole  these  averages 
have  increased  from  $11.14  in  1850  to  $69.38  in  1920.  It  is  reason- 
able that  the  average  country  bank  with  a  capital  of  something  like 
$30,000,  which  gives  it  a  loaning  capacity  to  any  one  borrower  of 
only  $3,000,  cannot  be  of  any  great  assistance  to  farmers  who  wish 
to  make  real  progress  in  the  development  and  improvement  of  their 
lands.  Three  thousand  dollars  is  too  small  an  amount  to  be  worth 
considering  for  farms  on  many  of  which  the  investment  is  greater 
than  the  capital  of  the  average  country  bank.  It  was  on  this  account 
that  the  farm  mortgage  companies  of  a  number  of  years  ago  sprung 
up  in  Chicago,  but  even  these  were  not  in  a  position  to  market  and 


546  FINANCING  AN  EMPIRE 

care  for  such  securities  as  adequately  as  is  now  being  done  under  the 
system  provided  by  Congress  in  1916. 

In  addition  to  the  service  Chicago  and  the  state  of  Illinois  re- 
ceive from  the  Federal  Land  Bank  of  St.  Louis,  there  are  seven 
Joint  Stock  Land  banks  provided  with  charters,  permitting  them 
to  make  loans  within  the  state  of  Illinois.  Two  of  these  are  located 
in  Chicago,  one  each  in  the  cities  of  Monticello  and  Edwardsville, 
Illinois,  and  one  in  Burlington,  Iowa.  These  five  are  the  only  ones 
which  actively  serve  the  Illinois  territory.  Two  in  Indiana — one 
located  at  Indianapolis  and  another  at  Lafayette — each  have  per- 
mission to  operate  in  Illinois,  but  at  the  time  of  this  writing  neither 
has  availed  itself  of  that  privilege. 

The  Chicago  Joint  Stock  Land  bank  is  the  largest  institution 
of  its  character  in  the  country.  It  serves  a  field  including  fifty-six 
million  acres  of  improved  farm  lands  and  within  its  district  lies 
approximately  one-fifth  of  the  total  farm  wealth  of  the  United 
States.    The  capital  amounts  to  four  million  dollars. 

As  one  sees  from  the  earlier  sections  of  this  chapter  and  also 
from  the  chapter  on  the  Chicago  Stock  Exchange,  public  utility 
financing  has  long  held  an  important  place  in  the  investment  market 
of  Chicago.  Consequently  it  is  only  reasonable  to  expect  that  de- 
velopments in  this  type  of  financing  would  come  from  Chicago.  One 
of  the  most  noteworthy  of  these  is  the  customer  ownership  plan  which 
has  been  carried  out  in  recent  years. 

Customer  ownership,  while  almost  wholly  developed  in  Chicago, 
was  not  originated  here.  It  was  first  thought  of  and  put  into  opera- 
tion by  the  Pacific  Gas  and  Electric  Company  of  California,  which 
succeeded  in  placing  a  large  amount  of  its  six  per  cent  preferred 
stock  among  its  consumers  and  thereby  proved  that  in  some  sections 
of  the  country,  at  least,  the  public  could  be  persuaded  to  invest  in 
such  issues  without  the  intervening  aid  of  a  broker.  Consequently, 
in  June,  1915,  the  Byllesby  Engineering  and  Management  Corpora- 
tion of  Chicago,  after  many  years  of  discussion  of  the  proposition 
and  after  obtaining  what  seemed  to  be  only  adverse  opinions  from 
investment  bankers  and  others  who  believed  themselves  in  a  position 
to  know,  introduced  the  customer  ownership  plan  on  its  properties 
known  as  the  Northern  States  Power  Company. 

It  was  not,  however,  until  1916  that  the  term  "customer  owner- 
ship" which  has  now  become  so  current,  was  first  introduced.  It  was 
coined  by  W.  H.  Hodge,  publicity  manager  for  the  Byllesby  con- 


Vol.  1—18 


HISTORY  OF  BANKING  IN  ILLINOIS  549 

cern,  in  a  paper  he  presented  before  the  Colorado  Electric  Power 
and  Railway  Association  at  its  annual  convention  held  at  Glenwood 
Springs  in  September.  Customer  ownership,  according  to  Mr. 
Hodge,  is  a  mutualization  of  the  utilities.  It  means  popular  but  not 
municipal  ownership. 

In  June,  1915,  when  the  experiment  was  first  launched,  financial 
conditions  throughout  the  United  States  were  unsettled.  It  had  been 
generally  impossible  for  utility  companies  to  finance  large  undertak- 
ings for  the  preceding  two  and  a  half  years,  except  through  the  issue 
of  short-term  coupon  notes  paying  a  high  rate  of  interest.  Conse- 
quently, customer  ownership,  although  first  installed  as  a  way  out  of 
a  difficulty,  nevertheless  was  greatly  hampered  in  its  progress  by 
that  very  same  difficulty.  In  the  year  following,  the  Mar  brought 
a  surplus  of  funds  to  the  country  which  became  available  for  invest- 
ment purposes,  so  that  1916  was  a  good  year  for  a  new  undertaking. 
That,  however,  was  the  only  satisfactory  year  experienced  for  some 
time,  as  immediately  thereafter  the  United  States  went  into  the  war 
and  investment  funds  were  largely  absorbed  by  the  government's 
own  issues.  But  in  spite  of  all  the  difficulties  encountered,  the  cus- 
tomer ownership  plan  grew  and  prospered.  The  Byllesby  firm  sent 
out  a  staff  of  salesmen  whose  duty  it  was  to  promote  the  customer 
ownership  plan — between  liberty  bond  issues.  Whenever  the  govern- 
ment was  in  the  market  for  funds,  the  entire  force  of  these  men 
was  turned  over  to  war  uses.  Between  liberty  bond  issues,  which 
came  thick  and  fast  in  those  days,  Byllesby  stock  was  sold  in  amounts 
that  were  more  than  gratifying. 

By  the  time  the  war  was  ended  and  it  again  became  possible  to 
seek  funds  in  any  appreciable  amount,  the  Byllesby  customer  owner- 
ship plan  had  become  so  popular  that  it  was  quickly  embraced  by 
many  of  the  country's  largest  companies  and  was  taken  on  by  these 
with  such  success  that  in  all  probability  many  of  those  who  first  pre- 
dicted that  Byllesby  would  never  make  a  success  of  the  plan,  would 
now  be  ready  to  testify  that  they  themselves  had  invented  it.  At  any 
rate,  electric  light  and  power  industries  everywhere  have  so  annexed 
the  customer  ownership  plan  that  it  has  become  an  integral  part  of 
their  organization,  the  National  Electric  Light  Association,  which 
has  appointed  a  commission  to  assist  operators  in  doing  their  financ- 
ing in  this  way. 

Thus  in  the  investment  field  the  bankers  of  Illinois  have  played 
a  prominent  part  in  blazing  the  trail  to  success  and  in  more  than  one 


550  FINANCING  AN  EMPIRE 

respect  have  been  imitated  by  others  the  country  over.  It  is  natural 
that  Chicago  should  have  played  an  important  part  in  this  field, 
for,  as  has  long  been  known,  new  developments  work  toward  the 
west.  The  investment  business  must  of  necessity  be  the  last  link 
in  the  banking  chain  to  be  developed  to  a  large  extent,  for  there  is 
never  much  money  available  for  investment  purposes  in  a  new 
country  and  all  world  progress  seems  to  have  traveled  west.  Chi- 
cago, already  well  advanced  in  other  fields,  was  able  to  add  her 
characteristic  touch  to  the  investment  market.  It  is  interesting  to 
recall  that  the  world  circuit  was  made  complete  shortly  after  the 
World  war  when  there  were  handled  through  Chicago's  markets 
an  issue  of  bonds  bought  in  Japan,  the  point  farthest  east,  and  sold 
in   California,   the   farthest  western   point. 


CHAPTER  XXXI 
BANKERS'  ORGANIZATIONS 

Chicago's  first  bankers'  convention — American  Bankers'  Association — Illinois  Bankers' 
Association — Chicago  and  Cook  County  Bankers'  Association — American  Institute 
of  Banking — Investment  Bankers'  Association — Bankers'  Club. 

It  is  to  be  expected  that  the  state  claiming  to  be  the  nation's 
second  financial  center  would  take  an  extremely  active  part  in 
bankers'  organizations  of  various  types,  but  it  is  not  generally  realized 
how  large  a  part  Illinois  does  play  and  for  how  long  a  period  her 
bankers  have  been  known  the  country  over  for  the  contributions  they 
have  made  to  better  banking.  Records  show  that  back  in  1864,  when 
Illinois  was  a  state  almost  without  official  banking  institutions,  ex- 
cepting those  few  national  banks  which  had  been  formed  in  eager 
response  to  the  authorization  of  this  greatly  needed  system,  Edmund 
Aiken,  then  president  of  the  new  First  National  Bank  of  Chicago, 
was  elected  one  of  the  vice-presidents  of  a  group  of  bankers  which 
met  in  New  York  on  October  19  to  discuss  many  problems  confront- 
ing them.  Since  most  of  the  banking  business  of  the  country  up  to 
that  time  had  been  handled  in  the  east  and  Illinois  had  for  a  number 
of  years  been  practically  without  banks,  it  is  significant  of  her  future 
progress  that  a  representative  of  the  financial  interests  of  that  state 
should  have  been  honored  with  an  office  in  the  bankers'  group. 

That  this  was  not  a  coincidence,  nor  due  solely  to  Mr.  Aiken's 
personal  aggressiveness,  is  plainly  indicated  by  the  fact  that  only 
two  years  later,  on  September  12,  1866,  a  similar  meeting  was  staged 
in  Chicago.  This  was  attended  by  sixty-six  presidents  and  cashiers 
representing  banks  in  the  states  of  Illinois,  Iowa,  Wisconsin,  Indiana, 
Michigan,  Missouri,  and  Minnesota,  while  one  banker  traveled  all 
the  way  from  Louisiana  to  attend  the  convention.  Eastern  bankers 
were  not  present,  as  this  meeting  had  been  called  to  discuss  a  purely 
western  problem.  At  the  time  Congress  was  considering  the  passage 
of  a  bill  making  New  York,  Boston,  and  Philadelphia  the  only  points 
at  which  national  bank  notes  might  be  redeemed.     Were  such  legis- 

551 


552  FINANCING  AN  EMPIRE 

lation  to  go  through,  it  was  almost  certain  to  result  in  the  withdrawal 
of  large  amounts  of  circulating  money  from  the  west,  where  a  rapidly 
developing  commerce  was  in  great  need  of  an  adequate  circulating 
medium  such  as  had  never  existed  in  the  west  prior  to  the  passage 
of  the  National  Bank  Act.  Therefore,  Chicago's  first  bankers'  con- 
vention was  held  for  the  purpose  of  defeating  such  legislation  and 
drawing  a  larger  proportion  of  circulating  funds  to  this  newer  sec- 
tion in  order  that  it  might  compete  adequately  with  the  older  east. 

In  later  years,  after  the  bankers  of  the  nation  had  united  their 
interests  in  the  organization  known  as  the  American  Bankers'  Asso- 
ciation, Illinois  played  a  consistently  important  part  in  its  affairs, 
and  Chicago  bankers  who  attained  world-wide  reputations  gave  gen- 
erously of  their  time  and  talents  to  the  development  of  general  bank- 
ing throughout  the  country.  In  1885,  1893,  1909,  and  1924,  national 
conventions  of  this  association  were  held  in  Chicago,  and  at  each 
of  these  meetings  there  were  gathered  bankers  from  all  parts  of  the 
country  to  discuss  problems  of  nation-wide  interest.  Likewise,  Illi- 
nois had  made  generous  contributions  to  the  roster  of  officers;  among 
the  prominent  men  who  have  served  as  presidents  of  the  American 
Bankers'  Association  five  have  contributed  in  large  measure  to  the 
development  of  banking  in  this  state.  The  first  of  these  was  Lyman 
J.  Gage  who  served  three  successive  terms  beginning  in  1883.  Mr. 
Gage  was  then  vice-president  of  the  First  National  Bank  of  Chi- 
cago and  later  Secretary  of  the  Treasury.  John  J.  P.  Odell,  presi- 
dent of  the  Union  Xational  Bank  of  Chicago,  served  as  president 
for  two  terms  in  1894  and  1895.  John  L.  Hamilton,  vice-president 
of  Hamilton  and  Cunningham  of  Hoopeston,  was  the  only  Illinois 
banker  outside  of  Chicago  to  be  elected  president  of  the  national 
association  of  bankers.  Mr.  Hamilton  served  in  this  capacity  in 
1905.  In  1908  George  M.  Reynolds,  then  president  of  the  Conti- 
nental and  Commercial  Banks,  was  president  of  the  association;  in 
1913  his  brother  Arthur  Reynolds  served  in  that  office.  At  the  time 
of  his  term  as  president  of  the  American  Bankers'  Association,  how- 
ever, Arthur  Reynolds  had  not  yet  made  his  connection  with  the 
Continental  and  Commercial  Banks  but  was  located  in  Des  Moines, 
Iowa. 

In  1890  the  bankers  of  the  state  felt  the  need  of  their  own  local 
organization  and  formed  the  Illinois  Bankers'  Association.  The 
following  year  those  operating  private  banks  formed  a  similar  group, 
designed  to  foster  their  particular  interests.     Before  long,  however, 


HISTORY  OF  BANKING  IN  ILLINOIS  553 

it  was  learned  that  both  groups  had  so  much  in  common,  and  so  much 
to  be  secured  from  one  another,  that  it  was  deemed  best  to  pool  their 
forces.  In  1894  the  two  were  united,  so  that  from  this  time  until 
state  laws  were  so  amended  as  to  abolish  private  banking,  the  Illi- 
nois Bankers'  Association  embraced  the  national,  state,  and  private 
banking  interests  of  the  state. 

From  its  inception  this  organization  has  been  a  strong  factor  in 
urging  legislation  to  promote  high  standards  in  banking.  When  such 
subjects  have  been  open  to  controversy,  the  Illinois  Bankers'  Asso- 
ciation has  always  stood  on  the  side  of  sound  money  and  good  bank- 
ing. It  consistently  opposed  free  silver  and  announced  itself  as 
unalterably  in  favor  of  maintaining  the  gold  standard,  this  latter 
principle  having  been  repeated  from  time  to  time  as  occasion  arose. 

In  recent  years  the  Illinois  Bankers'  Association  has  given  es- 
pecial attention  to  legislation  which  might  improve  the  protection 
both  of  bankers  and  of  their  clients,  it  has  constantly  urged  tax 
improvement,  and  has  taken  a  definite  stand  for  the  supervision  of 
dealers  in  mortgage  securities  and  other  investments.  Nor  has  it 
relied  on  legislative  forces  alone  for  better  protection  of  bankers  and 
the  funds  of  their  clients,  but  for  a  number  of  years  has  conducted 
a  large  and  ably  managed  protective  department  which  has  policed 
the  state.  In  fact,  the  association  has  given  so  much  of  its  attention 
to  the  protection  of  the  clients  of  banks  and  to  the  development  of 
business,  outside  of  banking,  in  the  state  that  Wayne  Hummer  of 
La  Salle  in  his  presidential  address  given  at  Peoria  in  1925  said  in 
part: 

"Through  all  these  years  we  have  considered  the  problems  of  the 
farmer,  the  business  man,  and  the  manufacturer.  We  have  taken  a 
position  on  all  affairs  of  the  state  and  nation,  the  general  welfare 
having  at  all  times  our  first  consideration.  I  am  firm  in  my  belief 
that  our  contributions  toward  right  thinking  on  these  various  prob- 
lems and  questions  has  in  no  small  measure  aided  in  their  solution, 
and  yet  I  cannot  understand  why  we  bankers  have  been  so  modest, 
why  we  have  given  so  little  time  and  thought  to  a  frank  and  open  dis- 
cussion of  the  problems  of  our  own  business." 

When  in  1901  the  association  met  at  Quincy  for  its  annual  con- 
vention, Lorenzo  Bull  of  that  city  was  asked  to  give  a  resume  of 
banking  as  he  remembered  it.  Mr.  Bull  was  then  well  along  in  years 
and  doubtless  had  many  interesting  recollections  to  offer  the  bankers, 
but  in  his  address  he  struck  a  note  which  subsequent  increases  in  the 


554  FINANCING  AN  EMPIRE 

association's  membership  proved  to  be  entirely  false.  What  Mr. 
Bull  said  was:  "You  are  doing  business  at  the  present  day  under 
a  system  of  banking  which  has  gradually  been  perfected  until  there 
remains  but  little  to  be  desired  for  its  further  improvement."  Were 
the  speaker  correct  in  this  statement,  there  certainly  would  have  been 
little  further  need  for  such  an  organization  as  the  Illinois  Bankers' 
Association  which  stood  consistently  for  banking  progress.  It  is, 
therefore,  significant  that  while  less  than  two  hundred  of  the  one 
thousand  banks  in  the  state  were  members  of  the  association  in  1901, 
almost  immediately  the  organization  came  to  be  of  such  great  worth 
in  the  eyes  of  bankers  as  to  increase  its  membership  to  900  by  1904, 
to  1,560  in  1911,  and  1,887  in  1925.  Even  in  1902  the  Illinois 
Bankers'  Association  could  boast  itself  as  being  the  largest  state 
bankers'  association  in  the  whole  country. 

Up  to  this  time  the  association  had  interested  itself  in  only  those 
problems  especially  affecting  the  bankers  of  Illinois,  but  in  1903  it 
departed  from  this  policy  for  the  first  time  when  it  joined  the  Iowa 
Bankers'  Association  in  holding  a  joint  convention  at  Rock  Island, 
Illinois.  Thereafter  the  bankers  of  Illinois  realized  that  their  prob- 
lems and  interests  were  so  closely  allied  with  those  of  bankers  in 
neighboring  states  that  they  frequently  allied  themselves  in  one  way 
or  another  with  them.  In  1904  the  annual  convention  was  not  even 
held  on  Illinois  territory;  instead,  the  bankers  journeyed  to  the 
World's  Fair  at  St.  Louis  where  they  held  their  sessions  in  the  Illi- 
nois Building  on  the  fair  grounds.  Needless  to  say,  this  conven- 
tion drew  the  largest  attendance  in  the  history  of  the  association 
up  to  that  time.  Between  sessions  the  Fair  was  visited  and  during 
sessions  prominent  Missouri  bankers  occupied  important  places  on 
the  program. 

Two  St.  Louis  banks  were  actually  taken  into  membership  in  1909 
and  others  were  later  admitted,  until  in  1925  the  asosciation  included 
in  its  membership  a  total  of  nineteen  institutions  located  outside  of 
Illinois.  While  the  organization  was  originally  intended  for  Illinois 
Bankers  alone,  it  was  agreed  in  1909  that  banks  so  located  as  to  do 
a  large  part  of  their  business  in  Illinois  should  be  entitled  to  member- 
ship. Since  the  constitution  did  not  specifically  prevent  these  from 
joining,  their  membership  was  accepted  and  found  to  be  a  valuable 
addition  to  the  organization. 

When  the  Illinois  Bankers'  Association  had  reached  its  twenty- 
first  anniversay — in   1911 — one  of  the  speakers  at   the  convention 


HISTORY  OF  BANKING  IN  ILLINOIS  555 

held  in  Springfield  ventured  for  the  first  time  to  suggest  that  it  was 
time  for  the  bankers  of  Illinois  to  put  their  house  in  order  by  requir- 
ing that  all  banks  in  the  state  be  placed  under  either  state  or  national 
supervision.  This  was  the  first  effort  made  to  abolish  private  banks 
which  by  that  time  had  begun  to  be  a  menace  to  honest  banking,  both 
private  and  incorporated  in  some  sections.  Nothing  was  immediately 
accomplished  as  the  result  of  this  suggestion,  but  the  following  year 
at  Peoria,  B.  F.  Harris  of  Champaign,  in  his  presidential  address, 
again  brought  up  the  matter  and,  in  order  to  start  action,  was  pre- 
pared with  a  committee  of  which  Charles  G.  Dawes  had  been  made 
chairman.  This  committee  had  drawn  up  a  bill  which  it  was  pro- 
posed that  the  Illinois  Bankers'  Association  should  present  to  the 
legislature  at  its  next  session.  However,  there  were  sections  of  the 
state  so  sparsely  settled  that  incorporated  banks,  because  of  the  large 
capital  requirements,  could  not  operate  profitably  in  them,  and  the 
resulting  fight  put  up  by  bankers  from  these  sections,  together  with 
that  of  unscrupulous  private  bankers  from  other  parts,  quickly  de- 
feated all  of  President  Harris'  efforts  and  the  abolishing  of  private 
banks  in  Illinois  was  not  accomplished  until  1917. 

In  1914  the  association  held  its  first  convention  aboard  a  steamer 
on  the  Great  Lakes.  This  provided  a  suitable  place  for  the  sessions 
during  the  trip  between  ports  and  ample,  interesting  entertainment 
was  offered  by  the  bankers  of  various  cities  vistied  on  the  journey. 
This  type  of  convention  proved  to  be  so  successful  that  it  was  re- 
peated on  subsequent  occasions. 

By  June,  1925,  the  number  of  banks  in  the  state  had  become  twice 
as  great  as  at  the  opening  of  the  century,  and  the  Illinois  Bankers' 
Association  had  increased  its  membership  from  less  than  two  hundred 
to  1,887  which  then  included  489  national  banks,  1,303  state  banks, 
one  Federal  Reserve  bank,  72  brokers,  19  banks  outside  the  state, 
one  chapter  of  the  American  Institute  of  Banking,  one  auditor's 
office,  and  one  State  Treasurer's  office. 

Although  the  banks  of  Illinois  took  a  prominent  part  in  general 
banking  progress  through  their  activities  in  the  American  Bankers' 
Association  and  the  Illinois  Bankers'  Association,  their  accomplish- 
ments in  these  directions  were  on  the  whole  only  what  might  be  ex- 
pected from  the  state  including  the  second  largest  banking  center 
of  the  country.  A  development,  however,  which  is  looked  upon  as 
one  of  the  marvels  of  the  country,  came  about  in  the  ranks  of  that 
small  organization  known  as  the  Chicago  and  Cook  County  Bankers' 


556  FINANCING  AN  EMPIRE 

Association,  which  included  in  its  membership  the  outlying  banks 
in  the  city  of  Chicago  and  like  institutions  in  neighboring  communi- 
ties. 

The  growth  and  development  of  the  business  of  these  institutions 
has  been  rivaled  in  no  other  city.  In  New  York  City,  where  similar 
developments  might  have  taken  place,  neighborhood  banking  was 
stunted  to  an  extent  by  downtown  banks  which  established  offices  in 
outlying  districts.  In  Chicago,  however,  where  this  extension  was 
not  made  on  the  part  of  the  larger  banks,  neighborhood  institutions 
have  grown  up  in  such  numbers  and  to  such  size  as  to  command  a 
savings  business  larger  than  that  of  all  the  loop  banks  combined  and 
to  have  a  commercial  business  comparing  very  favorably  with  that 
of  more  centrally  located  institutions. 

The  Chicago  and  Cook  County  Bankers'  Association  started  as 
the  South  Side  Bankers'  Association  which  met  periodically  in  an 
old  inn  near  the  stock  yards.  At  first,  this  was  simply  an  informal 
gathering  of  bankers  from  that  section  of  the  city  who  met  only  for 
the  purpose  of  furthering  their  own  interests.  So  many  good  results 
came  from  these  meetings  that  similar  groups  were  formed  in  other 
sections  surrounding  the  downtown  district,  and  in  time  these  bankers, 
realizing  that  their  interests  were  much  alike,  appreciated  that  more 
benefit  might  be  obtained  were  their  many  small  organizations  to  be 
consolidated.  Through  this  joining  of  groups  there  gradually  came 
into  being  the  Chicago  and  Cook  County  Bankers'  Association. 

As  these  groups  united  they  came  to  seek  the  advice  and  services 
of  Joseph  J.  Schroeder  who  was  Secretary  of  Chicago  Chapter  of 
the  American  Institute  of  Banking.  He  gave  such  time  as  he  could 
spare  until  1922,  when  a  full-time  secretary  was  appointed,  and  there- 
after the  Chicago  and  Cook  County  Bankers'  Association  came  to 
be  one  of  the  powers  in  the  development  of  the  banking  business  in 
those  sections  from  which  it  drew  its  membership. 

E.  N.  Baty  who  was  the  association's  first  full-time  secretary  and 
who  has  served  it  since  1922,  spent  many  months  tracing  the  his- 
tory of  outlying  banking  in  Chicago.  Although  there  was  little 
from  which  to  draw  such  a  history,  Mr.  Baty's  patience  and 
persistence  was  rewarded  with  a  number  of  extremely  interesting 
facts.  He  found  that  back  in  1874  Chicago  had  had  four  incor- 
porated outlying  banks,  two  with  national  and  two  with  state  char- 
ters. These  were  the  Home  National  Bank  located  at  Washington 
and  Halsted  streets,  which  had  been  organized  in  1872  and  which 


HISTORY  OF  BANKING  IN  ILLINOIS  557 

in  1874  had  deposits  of  more  than  two  hundred  and  fifty  thousand 
dollars;  the  Union  Stock  Yards  National  Bank,  organized  in  1868 
and  still  doing  business  under  the  name  of  the  Stock  Yards  National 
Bank;  the  Home  Savings  Bank,  also  located  at  Washington  and 
Halsted  Streets,  organized  in  1869  which,  together  with  the  Home 
National  Bank,  was  taken  over  by  the  John  R.  Walsh  interests  in 
1897  and  figured  in  the  great  Walsh  failure  of  1905;  and  the  Prairie 
State  Loan  and  Trust  Company,  also  established  in  1869,  which 
conducted  its  business  for  a  number  of  years  at  Washington  and 
Des  Plaines  Streets. 

By  1894  the  number  of  incorporated  banks  in  the  outlying  sec- 
tions of  Chicago  had  grown  to  thirteen,  representing  both  national 
and  state  institutions  and  having  total  deposits  of  approximately 
twelve  million  dollars.  By  the  opening  of  the  twentieth  century 
this  number  had  decreased  to  eleven,  not  because  of  failures,  but 
rather  through  moves  and  mergers.  Ten  years  later  there  were  six 
national  and  twenty-nine  state  banks  in  outlying  districts,  and  then 
the  real  development  which  has  astounded  the  financial  world  began. 
In  the  four  years  following  1910  the  number  of  outlying  banks  nearly 
doubled,  so  that  in  1914  there  were  twelve  national  and  sixty-three 
state  banks.  By  1924  the  neighborhood  banking  business  in  Chicago 
had  grown  to  such  proportions  that  of  the  two  hundred  banks  in  the 
city,  only  twenty-seven  were  located  downtown  in  what  was  termed 
the  "loop."  The  remaining  one  hundred  and  seventy-three  were  all 
in  outlying  districts  and  every  one  of  these  held  a  membership  in  the 
Chicago  and  Cook  County  Bankers'  Association.  At  that  time  New 
York  with  more  than  twice  the  population  of  Chicago  had  only  ap- 
proximately half  as  many  individual  banks. 

In  all,  the  one  hundred  and  seventy-three  outlying  banks  in  Chi- 
cago in  1924  had  aggregate  deposits  of  six  hundred  and  fifteen  mil- 
lion dollars,  which  amounted  to  an  average  of  more  than  three  and 
one-half  million  for  each  individual  bank. 

Between  1900  and  1924  the  outlying  banks  in  Chicago  increased 
their  total  deposits  by  three  thousand  per  cent,  while  all  incorporated 
banks  in  the  country  grew  in  deposits  only  slightly  over  five  hundred 
per  cent  during  the  same  period.  To  be  sure,  due  consideration  must 
be  given  the  fact  that  at  the  beginning  of  this  period  outlying  banks 
in  Chicago  were  somewhat  of  an  innovation  and  therefore  in  a  posi- 
tion to  grow  more  rapidly  than  the  well  established  institutions  in 
other  sections.     These  figures,  however,  may  still  hold  some  claim 


558  FINANCING  AN  EMPIRE 

to  accuracy  when  it  is  considered  that  during  the  last  two  years  of 
that  period  outlying  banks  in  Chicago  increased  their  deposits  more 
than  forty-two  per  cent  while  loop  banks  increased  theirs  only  twenty 
per  cent,  and  that  between  April  3,  1923,  and  March  31,  1924,  when 
banks  of  the  entire  country  were  increasing  their  deposits  four  per 
cent,  those  in  Chicago's  outlying  districts  were  making  a  twelve  per 
cent  increase,  or  just  three  times  the  rate  for  the  country  as  a  whole. 

At  the  end  of  1924  Chicago's  outlying  banks  held  more  deposits 
than  all  the  banks  of  the  six  states  of  Idaho,  New  Mexico,  Wyoming, 
Delaware,  Montana,  and  North  Dakota,  and  at  the  same  time  their 
deposits  were  larger  than  those  of  all  banks — national,  state,  and 
private — in  any  one  of  thirty-two  states.  Their  capital  was  greater 
than  the  combined  capital,  surplus,  and  undivided  profits  of  all  the 
banks  in  any  one  of  half  the  states,  while  the  states  of  Nevada,  Rhode 
Island,  and  Delaware  combined  had  fewer  banks  than  were  contained 
in  the  membership  of  the  Chicago  and  Cook  County  Bankers'  Asso- 
ciation. 

In  view  of  these  last  facts  and  recent  financial  disasters  in  North 
Dakota,  it  is  interesting  to  note  that  Chicago,  unlike  that  state,  was 
not  overbanked.  While  in  the  country  as  a  whole  there  was  one  bank 
for  every  3,520  people,  Chicago  had  only  one  for  every  15,000. 

The  Chicago  and  Cook  County  Bankers'  Association  has  been 
very  active  in  producing  certain  greatly  desired  reforms.  One  of  the 
first  of  these  to  be  undertaken  with  real  enthusiasm  was  the  cam- 
paign against  branch  banking  which  followed  the  opening  of  a  branch 
of  the  First  National  Bank  of  St.  Louis  in  June,  1922.  Secretary  of 
the  Treasury  Crissinger  was  then  of  the  opinion  that  it  could  do 
no  harm  to  allow  branch  national  banks  in  such  states  as  permitted 
their  own  institutions  to  operate  with  branches.  This,  he  felt,  would 
enable  the  national  banks  to  compete  on  a  more  equal  footing  with 
those  owning  state  charters,  and  at  the  same  time,  by  refusing  to 
permit  branches  in  those  states  opposed  to  branch  banking,  no  harm 
could  come  to  the  general  banking  situation.  The  opening  of  the 
first  branch  by  the  First  National  Bank  of  St.  Louis,  however,  raised 
such  a  tumult  that  in  time  the  Secretary  was  led  to  give  the  law 
on  that  subject  a  more  careful  reading,  after  which  he  came  to  the 
conclusion  that  while  national  banks  had  no  authority  to  establish 
and  operate  actual  branches,  they  could  not  be  prevented  from  open- 
ing and  operating  additional  offices  or  agencies  in  the  same  place 
in  which  they  were  authorized  to  do  business. 


HISTORY  OF  BANKING  IN  ILLINOIS  559 

The  Chicago  and  Cook  County  Bankers'  Association  felt  that 
the  very  existence  of  its  members  depended  upon  defeating  any  power 
national  banks  might  have  for  establishing  branches.  The  outlying 
banks  of  Chicago  had  grown  to  their  present  state  of  strength  largely 
because  they  did  not  have  to  compete  with  the  branches  of  downtown 
institutions.  They  greatly  feared  that  once  national  banks  were  en- 
abled to  establish  branches  under  any  circumstances  whatsoever,  they 
could  soon  establish  them  under  all  circumstances,  and  the  more 
intimate  neighborhood  banks  which  were  serving  Chicago  so  well 
would  be  unable  to  compete  with  branches  of  larger  institutions. 
Therefore,  immediately  after  the  establishment  of  the  St.  Louis 
branch  bank,  a  meeting  of  the  Chicago  and  Cook  County  Bankers' 
Association  was  held  on  June  29,  1922,  at  which  Andrew  J.  Frame, 
the  seventy-eight-year-old  banker  from  Waukesha,  Wisconsin,  who 
had  taken  an  active  part  in  many  banking  and  monetary  reforms  of 
national  scope,  was  the  principal  speaker.  Mr.  Frame  was  so  elo- 
quent that  upon  the  completion  of  his  address  the  bankers  present 
drew  up  and  sent  to  Senators  McCormick  and  McKinley  and  the 
Congressmen  of  Cook  County  a  telegram  protesting  Mr.  Crissinger's 
action.  Thereafter  the  fight  waged  for  some  time,  but  eventually 
the  association  secured  the  decision  desired  in  spite  of  the  fact  that 
there  had  for  some  years  been  a  number  of  Chicago  banks  which  had 
favored  branch  banking  on  the  ground  that  neighborhood  banking 
would  be  safer  if  kept  in  the  hands  of  only  the  largest  and  strongest 
of  the  city's  financial  institutions.  The  Chicago  and  Cook  County 
Bankers'  Association,  however,  rather  ably  refuted  this  argument, 
when  it  pointed  out  that  a  fair  proportion  of  its  member  banks  were 
affiliated  with  the  Chicago  Clearing  House,  the  requirements  of  which 
were  extremely  exacting,  and  that  while  the  neighborhood  banking 
system  had  been  abused  and  therefore  had  constituted  somewhat  of 
a  menace  many  years  previously,  such  banks  were  at  the  time  of  the 
controversy,  with  very  few  exceptions,  under  capable  management 
and  were  in  most  satisfactory  condition.  The  association  further 
pointed  out  that  while  the  larger  loop  banks  might  give  as  great  a 
degree  of  protection  to  their  clients,  they  could  not  possibly  give  the 
same  measure  of  intimate  and  understanding  service. 

Before  long  the  city  of  Chicago  came  to  a  more  adequate  appre- 
ciation of  a  system  of  neighborhood  banks  greater  than  that  in  any 
other  large  community  in  the  world  and  far  more  secure  and  service- 
able than  any  other  such  system  anywhere. 


560  FINANCING  AN  EMPIRE 

After  completing  its  campaign  against  branch  banking  the  asso- 
ciation next  undertook,  in  December,  1923,  a  similar  campaign  for 
the  supervision  of  real  estate  mortgage  investments.  Its  members 
became  aware  of  the  fact  that  the  integrity  of  this  most  common 
form  of  investment  was  far  from  being  all  that  might  be  desired  in 
the  city  of  Chicago,  and  brought  to  light  a  number  of  instances  where 
supervision  seemed  best,  with  the  result  that  this  matter  was  taken 
up  by  other  organizations  as  well  and  much  was  done  to  improve 
conditions. 

In  many  respects  the  neighborhood  banks  were  in  a  position  to 
profit  most  by  the  architectural  suggestions  made  by  the  World's 
Fair  held  in  Chicago  in  1893.     Thereafter,  whenever  any  of  these 
banks  undertook  to  build   its  own  quarters,  it  was  almost  certain 
to  have  the  new  building  most  carefully  designed  along  purely  archi- 
tectural lines,  so  that  these  buildings  came  to  be  centers  of  community 
pride  and  set  examples  to  be  followed  by  other  institutions  building 
homes  for  themselves  and  thereby  the  general  aprjearance  of  many 
sections  of  Chicago  was  greatly  enhanced.    At  the  same  time  a  large 
number  of  these  banks  attempted  to  make  their  buildings  of  prac- 
tical as  well  as  artistic  value  to  their  communities,  and  so  included 
community  halls  where  gatherings  for  social,  business,  and  educa- 
tional purposes  might  be  held.     In   some  of  the  banks,  meetings 
addressed  by  reliable  business  authorities,  purely  for  the  benefit  of 
the  men  and  women  of  their  neighborhoods,  were  held  at  regular 
intervals  under  the  direction  of  the  bank  itself,  or  where  two  or  more 
banks  were  situated  close  to  one  another,  they  would  join  forces  in 
providing  such  community  development  rather  than  use  it  competi- 
tively as  an  advertising  medium.     Where  banks  do  not  have  these 
halls  or  where  their  facilities  have  been  inadequate  for  the  crowds 
to  be  accommodated  on  special  occasions,  it  has  been  the  usual  custom 
for  them  to  join  their  forces  in  securing  the  assembly  hall  of  a  school 
house  or  some  other  available  place,  all  banks  advertising  the  event 
to  be  staged  there  at  their  joint  expense. 

In  1924  the  association  took  up  an  active  "Support  the  Federal 
Reserve  System"  campaign,  during  which  it  had  speakers  who  ad- 
dressed meetings  on  what  its  members  believed  to  be  the  finest  piece 
of  legislation  ever  enacted,  and  urged  the  general  public  as  well  as 
those  especially  interested  in  banking  problems  to  do  all  in  their 
power  to  defend  the  Federal  Reserve  System  against  the  dangers  of 
political  attacks  then  confronting  it. 


HISTORY  OF  BANKING  IN  ILLINOIS  561 

When  the  association  made  an  accounting  of  its  members  in  June, 
192.5,  it  was  learned  that  the  176  banks  located  outside  of  the  loop 
district  in  Chicago  had  a  total  of  $660,000,000  in  deposits,  as  against 
eleven  banks  with  but  $20,349,000  in  deposits  twenty-five  years 
before.  This  is  indeed  remarkable  in  the  history  of  banking  growth. 
Of  the  neighborhood  banks  in  Chicago  in  1925,  one  hundred  and 
twenty-three  were  affiliated  with  the  Chicago  Clearing  House  Asso- 
ciation— an  organization  of  which  it  can  be  said  that  no  customer 
of  any  of  its  banks  has  in  recent  years  ever  lost  a  dollar  of  his  de- 
posits through  bank  failures — and  besides  forty-seven  were  members 
of  the  Federal  Reserve  System. 

Two  national  associations  of  interest  to  bankers  in  which  Chicago 
plays  a  conspicuous  part,  are  the  American  Institute  of  Banking 
and  the  Investment  Bankers*  Association.  The  former  organization 
was  founded  in  1900  and  the  following  March  a  small  group  of  men 
organized  the  Chicago  Chapter  at  a  meeting  held  at  the  Grand 
Pacific  Hotel.  Fred  I.  Kent,  then  with  the  First  National  Bank 
and  since  become  vice-president  of  the  Bankers'  Trust  Company  of 
New  York,  and  one  of  the  world's  foremost  authorities  on  subjects 
concerning  foreign  exchange,  was  Chicago  Chapter's  first  president. 

In  1904  the  Chapter  began  the  publication  of  a  small  house 
organ  known  as  "The  Bank  Man,"  which  is  still  in  existence  and  is 
now  the  oldest  publication  in  any  chapter  in  the  country.  In  1915 
the  Chapter  found  it  necessary  to  take  steps  to  meet  its  financial 
requirements  on  a  more  adequate  basis  and  therefore  established 
an  endowment  fund  of  one  hundred  thousand  dollars.  A  part  of 
this  fund  was  raised  by  the  Institute  through  giving  entertainments 
of  various  descriptions,  but  some  eighty-five  thousand  dollars  was 
contributed  by  banks  whose  younger  employees  were  receiving  great 
benefit  from  the  educational  classes  conducted  by  the  Chapter.  By 
1925  Chicago  Chapter  of  the  American  Institute  of  Banking  had 
3,137  members,  five  hundred  of  whom  were  bank  officers.  Many 
of  these  last  attributed  their  high  positions  to  the  assistance  they 
had  received  from  the  educational  work  of  the  chapter. 

On  January  16,  1920,  another  chapter  was  formed  for  the  bene- 
fit of  bank  employees  throughout  the  state  in  sections  other  than 
Chicago.  This  is  known  as  the  Illinois  State  Chapter  and,  whereas 
Chicago  Chapter  is  able  to  carry  on  its  educational  program  through 
classes  under  the  instruction  of  suitably  trained  instructors,  Illinois 
Chapter  must,  of  necessity,  conduct  most  of  its  work  through  cor- 


562  FINANCING  AN  EMPIRE 

respondence  for  which  ample  provision  is  made  at  national  head- 
quarters in  New  York. 

The  Investment  Bankers'  Association  was  organized  in  1912  by 
a  group  of  bankers  headed  by  George  B.  Caldwell,  then  with  the 
Continental  and  Commercial  Trust  and  Savings  Bank  of  Chicago, 
and  since  known  as  the  "father  of  the  association."  Mr.  Caldwell 
was  president  of  this  organization  from  1912  to  1914  and  since  that 
time  its  offices  have  been  given  through  a  means  of  rotation  rather 
than  by  election.  Although  Mr.  Caldwell  went  to  New  York  some 
two  years  ago,  where  he  has  become  nationally  prominent  as  an 
investment  banker,  his  association,  started  from  Chicago,  continues 
to  grow  in  magnitude,  while  other  prominent  investment  bankers 
from  Chicago  contribute  generously  of  their  time  to  its  progress. 

The  association  has  established  its  national  headquarters  in  Chi- 
cago under  the  management  of  Frederick  R.  Fenton  *  as  secretary 
and  Clayton  G.  Schray  as  assistant  secretary.  Both  of  these  gen- 
tlemen have  served  the  Investment  Bankers'  Association  in  these 
respective  capacities  since  its  organization.  The  only  national  con- 
vention which  the  Investment  Bankers  have  held  in  Chicago  was  in 
1913,  when  meetings  were  held  October  28  to  30.  Only  once  since 
the  presidency  of  Mr.  Caldwell  has  a  Chicago  man  headed  the  asso- 
ciation. He  was  Roy  C.  Osgood,  vice-president  of  the  First  Trust 
and  Savings  Bank,  who  served  for  the  year  1920-21;  at  the  same 
time  Watkin  W.  Kneath  of  the  National  Bank  of  the  Republic  was 
treasurer.  Doubtless  the  active  part  Chicago's  investment  bankers 
have  played  in  affairs  of  the  association  would  have  entitled  that 
city  to  more  frequent  representation  in  the  roster  of  officers  were  it 
customary  for  the  association  to  choose  its  officers  by  election.  Under 
its  present  system,  however,  these  offices  must  be  given  by  location, 
so  that  every  section  and  group  represented  in  the  association  may  at 
some  time  have  due  representation  in  the  managing  personnel.  How- 
ever, as  a  number  of  vice-presidents  are  provided  for,  Chicago  has 
frequently  been  represented  in  this  capacity.  Also  prominent  men 
from  Chicago  have  appeared  on  convention  programs. 

An  organization  of  Chicago  bankers  remarkable  for  the  large 
proportion  of  its  members  who  have  attained  more  than  local  atten- 
tion as  a  result  of  the  contributions  they  have  been  able  to  make  to 
the  banking  profession,  is  the  Bankers'  Club  of  Chicago,  started  in 
1882  for  the  express  purpose  of  promoting  the  social,  friendly,  and 
business  relations  of  its  members.    This  organization,  composed  only 

•Died  April  17,  1926. 


HISTORY  OF  BANKING  IN  ILLINOIS  563 

of  bank  officers,  first  came  into  existence  on  February  18,  1882,  when, 
according  to  its  minute  book  kept  in  careful  and  minute  detail,  a 
banquet  was  arranged  by  the  clearing-house  committee  to  which 
those  deemed  eligible  for  membership  were  invited.  This  dinner, 
according  to  the  records,  was  held  at  the  Grand  Pacific  Hotel  and 
cost  five  dollars  a  plate  with  wine  extra.  For  some  days  in  advance 
those  in  charge  were  kept  busy  making  elaborate  plans  for  seating 
arrangements,  so  that  no  two  men  from  the  same  bank  might  appear 
at  the  same  table  and  that  each  table  might  be  made  up  of  those 
least  acquainted  with  one  another.  Later,  in  writing  up  the  minutes 
of  the  first  meeting,  the  secretary  included  a  minutely  drawn  dia- 
gram of  the  tables,  showing  who  sat  at  each,  the  bank  each  came 
from  and,  by  an  ingenious  device,  he  even  showed  the  relative  im- 
portance of  these  men  in  their  profession.  Lyman  J.  Gage,  who  was 
chairman  of  the  meeting  was  represented  by  a  series  of  concentric 
circles,  the  outer  one  of  which  was  drawn  in  a  heavy  black  line,  while 
other  members  of  the  clearing-house  committee  who  presided  over 
the  smaller  individual  tables  were  represented  by  similar  symbols 
without  the  distinguishing  black  ring.  Thirty-seven  bankers  were 
present  at  this  first  meeting. 

A  second  similar  dinner  was  held  at  the  same  hotel  on  April  22, 
1882,  and  again  Mr.  Gage  acted  as  chairman.  On  that  occasion 
articles  of  association  were  adopted  to  which  the  thirty-four  members 
present  subscribed,  and  an  election  was  held  at  which  the  following 
officers  were  chosen:  L.  J.  Gage,  President;  Joseph  O.  Rutter,  Vice- 
President;  James  D.  Sturges,  Secretary  and  Treasurer;  and  Orson 
Smith,  Byron  L.  Smith  and  John  P.  Odell  were  elected  members 
of  the  executive  committee.  The  secretary  and  treasurer  held  his 
office  for  the  following  twelve  years.  Mr.  Gage  and  Mr.  Rutter  each 
served  for  the  first  three  years  of  the  existence  of  the  club. 

Beginning  with  the  third  dinner  meeting,  which  was  officially 
known  as  the  club's  first  regular  meeting,  there  was  established  the 
custom  of  having  a  special  program  of  real  value.  Vice-President 
J.  O.  Rutter  appeared  on  the  first  of  these  programs  with  a  paper 
on  the  early  history  of  banking  in  Illinois  and  Chicago  in  which  he 
gave  sketches  of  many  bankers  who  had  been  noted  in  former  days. 
In  the  years  that  followed,  the  speakers  at  such  banquets  included 
many  men  whose  names  have  become  well  known  the  country  over. 
Among  them  were  Andrew  Carnegie  who  spoke  on  February  23, 
1888;  Dr.  Emil  G.  Hirsch,  Rabbi  of  Sinai  Temple  in  Chicago;  Dr. 


564  FINANCING  AN  EMPIRE 

Frank  W.  Gimsaulus,  President  of  Armour  Institute;  Prof.  J.  L. 
Laughlin  of  the  University  of  Chicago,  who  addressed  the  Bankers' 
Club  in  December  of  1894  before  he  had  become  widely  known  for 
his  work  on  the  Indianapolis  Monetary  Commission  and  the  National 
Monetary  Commission;  Eugene  Field  recited  some  of  his  poems  in 
1895;  Dr.  Barth,  a  member  of  the  German  Parliament,  addressed  a 
meeting  in  1896;  Charles  G.  Dawes  first  addressed  the  club  in  1897 
at  a  dinner  given  in  honor  of  first  President  Lyman  J.  Gage  upon  his 
appointment  as  Secretary  of  the  Treasury.  Mr.  Dawes  has  since 
addressed  the  club  on  many  other  occasions.  In  1898  Majors  Fred 
A.  Smith  of  the  United  States  Army  and  Horatio  L.  Wait  of  the 
Navy  addressed  the  club  on  the  same  evening,  telling  of  their  ex- 
periences in  the  Cuban  war.  Among  prominent  college  presidents 
who  talked  to  this  group  were  included  the  names  of  James  B.  Angell 
and  Edmund  J.  James  of  Northwestern  University,  Harry  Pratt 
Judson  of  the  University  of  Chicago,  and  Charles  R.  Van  Hise  of 
the  University  of  Wisconsin.  Reverend  Frank  Crane,  well  known 
for  his  apt  editorials  and  short  articles,  addressed  a  dinner  in  1899; 
James  J.  Hill,  president  of  the  Great  Northern  Railway,  talked  on 
"Steamship  Subsidies  and  Oriental  Trade"  in  December  of  1900. 
From  among  Chicago's  own  great  men  there  were  chosen  the  names 
of  W.  B.  Ridgely  in  1901  when  he  was  Comptroller  of  the  Currency; 
Raymond  Robbins,  superintendent  of  the  municipal  lodging  house; 
Prof.  George  E.  Vincent,  then  of  the  University  of  Chicago  and 
afterward  President  of  the  University  of  Michigan  and  of  the  Rocke- 
feller Foundation  of  New  York,  John  T.  McCutcheon,  the  famous 
cartoonist;  and  Sidney  Smith  who  is  probably  no  less  well  known. 
William  Jennings  Bryan  spoke  in  1908,  which  would  indicate  that 
the  bankers  of  Chicago  were  sufficiently  broad  minded  to  be  willing 
to  listen  to  a  man  whose  theories  they  had  steadily  opposed.  An- 
other political  speaker  of  note  was  Speaker  Joseph  G.  Cannon  who 
appeared  the  same  year.  George  Ade  and  "Buffalo  Bill"  appeared 
in  1911  and  1913,  respectively.  Charles  M.  Schwab,  President  of 
the  United  States  Steel  Corporation;  H.  H.  Hanna,  chairman  of 
the  Executive  Committee  of  the  Indianapolis  Monetary  Commis- 
sion; Theodore  P.  Shonts,  chairman  of  the  Panama  Canal  Commis- 
sion; Frank  A.  Vanderlip  and  Charles  E.  Mitchell,  both  presidents 
of  the  National  City  Bank  of  New  York,  have  all  spoken  on  various 
occasions.  From  time  to  time  both  James  B.  Forgan  and  Lyman 
J.  Gage  of  the  First  National  Bank  of  Chicago  have  appeared  on 


HISTORY  OF  BANKING  IN  ILLINOIS  565 

programs  of  the  Bankers'  Club,  Mr.  Gage's  last  appearance  being 
in  1903  when,  as  President  of  the  United  States  Trust  Company  of 
New  York,  he  came  back  as  the  guest  of  an  organization  of  which  he 
was  the  first  president. 

On  reading  the  minute  books  telling  of  these  banquets  one  gains 
the  impression  that  the  bankers  back  in  the  eighties  and  early  nineties 
were  very  precise  gentlemen,  for  no  small  detail  seems  to  have  been 
omitted.  One  learns  the  shape  of  the  banquet  table  which  at  times 
took  the  form  of  a  horseshoe,  a  triangle,  or  the  letter  "T."  Each  guest 
is  noted  by  name,  as  is  also  his  precise  seat  at  the  table,  the  bank  he 
represented,  and  whether  he  was  a  member  or  a  guest  of  the  club. 
Such  entries  as  "Meeting  was  called  for  6:30  o'clock  P.  M.  Dinner 
was  served  at  7:40"  are  usual,  and  frequently  the  secretary  took 
great  pains  to  record  that  not  every  available  minute  was  devoted 
to  club  business  but  instead  "Coffee  was  served  about  9:30  P.  M. 
After  coffee  a  recess  of  fifteen  or  twenty  minutes  was  had,  devoted  to 
informal  sociability,  after  which  the  meeting  was  called  to  order." 

The  first  large  meeting  of  the  Bankers'  Club  was  held  at  the 
Grand  Pacific  Hotel  on  October  23,  1883,  when  seventy-one  mem- 
bers and  guests  assembled  to  hear  an  address  by  Albert  S.  Boles 
of  New  York,  Editor  of  the  Bankers'  Magazine,  on  the  subject  of 
"Currency  of  the  Future."  On  that  momentous  occasion  members 
invited  their  friends  from  far  and  near,  so  that  there  were  numbered 
among  the  guests  men  from  New  York,  Cincinnati,  Boston,  Mil- 
waukee, Grand  Rapids,  St.  Louis,  and  Omaha,  as  well  as  from 
cities  other  than  Chicago  in  Illinois.  The  meeting,  however,  must 
have  been  something  of  a  disappointment,  for  the  secretary  added  a 
footnote  to  his  record  which  read,  "The  dinner  was  no  credit  to  the 
hotel.  Charged  $7.50  per  plate  for  seventy-six  guests."  He  does 
not  tell,  however,  whether  it  was  the  food  and  service  that  was  at 
fault  or  whether  the  fact  that  five  uneaten  dinners  were  charged  for 
that  ruined  the  banquet.  At  any  rate  thereafter  the  Bankers'  Club 
discontinued  having  dinners  at  the  Grand  Pacific  Hotel  and  after 
trying  several  places,  finally  settled  on  "Kingsley's"  where  for  many 
years  every  dinner  meeting  was  held.  Perhaps  one  thing  that  made 
Kingsley's  attractive  was  the  fact  that  after  the  dinner  was  over  the 
tables  were  removed  and  replaced  by  "an  abundant  supply  of  easy 
chairs,  rockers,  sofas,  and  so  forth." 

In  time  the  bankers  must  have  become  lonely  at  their  elaborate 
dinners,  for  they  installed  an  annual  "ladies'  night"  at  which  their 


566  FINANCING  AN  EMPIRE 

feminine  guests  were  given  an  adequate  impression  of  what  consti- 
tutes proper  entertainment.  On  these  occasions  the  banquets  were 
made  more  elaborate  than  ever,  the  entertainment  was  provided  with 
a  strict  view  to  the  tastes  of  ladies,  and  each  guest  received  a  gift 
which,  according  to  the  treasurer's  reports,  cost  the  club  from  three 
to  five  dollars  each  in  lots  of  one  hundred  and  fifty  or  more  at 
"Peacock's." 

From  the  time  of  its  organization  the  Bankers'  Club  has  always 
been  composed  of  men  closely  related  to  the  Chicago  Clearing  House 
Association.  Consequently  the  club  has  on  many  occasions  shared 
the  rooms  of  the  Clearing  House.  At  one  time  the  club  established 
the  library  in  the  Clearing  House,  but  later,  because  club  members 
did  not  seem  to  find  the  books  sufficiently  interesting  to  devote  many 
hours  to  them,  the  collection  was  given  to  Newberry  Library  of 
Chicago.  Instead  of  devoting  its  funds  to  library  books,  the  club 
in  late  years  has  had  portraits  of  a  number  of  Chicago's  most  promi- 
nent bankers  painted,  which  have  been  presented  to  the  Chicago 
Clearing  House  Association  where  they  hang  on  the  walls  of  the 
committee  room. 

In  a  way  the  Bankers'  Club  of  Chicago  is  an  organization  which 
unites  all  bankers'  groups  represented  in  that  community,  for  in  its 
membership  is  included  a  large  proportion  of  those  men  who  have 
held  high  places  in  each  of  the  others. 


CHAPTER  XXXII 
PRIVATE  BANKING 

Position  of  private  banks — Unscrupulous  use  of  private  banking  privilege — Difficulties 
confronting  private  bankers — Efforts  to  secure  proper  regulation — Difficulties  with 
banks  in  suburbs  of  Chicago — Statistics  on  private  banking — Bank  runs — One  bank 
saved  with  Russian  Rubles — Chicago  conference  for  the  regulation  of  banks — Buck- 
Austin  Bill  passed  in  1917 — Closing  of  one  of  Chicago's  most  respected  private  banks 
— Effect  of  regulation  on  establishment  of  state  banks. 

To  acquire  exact  figures  on  the  subject  of  private  banking  in 
Illinois  would  be  an  almost  impossible  task,  for  official  reports  con- 
cerning such  institutions  have  been,  from  the  very  nature  of  the 
organizations,  extremely  sketchy  and  inexact,  while  records  from 
other  sources  were  similarly  unreliable.  No  law  required  a  private 
bank  to  make  reports  to  any  established  authority;  consequently, 
there  can  be  no  accurate  record  covering  their  activities.  For  in- 
stance, the  comptroller,  in  his  report  for  1892,  showed  the  existence 
of  149  of  these  institutions,  while  the  Private  Bankers'  Association 
formed  the  same  year,  reported  a  total  of  500  in  the  state.  In  1909 
the  comptroller  used  the  figures  reported  by  the  National  Monetary 
Commission  which  gave  420  as  the  number  of  private  banks  in  Illi- 
nois, with  loans  and  discounts  amounting  to  more  than  forty-six 
million  dollars.  Both  the  number  of  banks  and  the  amount  of  their 
resources  thus  reported  were  more  than  double  the  same  items  re- 
ported by  the  State  auditor  for  the  years  both  preceding  and  follow- 
ing 1909.  It  is  to  be  expected,  from  the  careful  nature  of  the  studies 
made  by  that  organization,  that  the  figures  of  the  National  Monetary 
Commission  are  more  nearly  exact  than  any  others. 

It  is  interesting  to  recall  that  at  the  time  Illinois  discontinued  her 
state  banks  because  of  the  disasters  that  had  befallen  through  those 
institutions,  and  when  the  state  accepted  the  National  banking  system 
as  being  the  best  possible  medium  for  financial  transactions,  no  pro- 
vision was  made  against  the  private  bank,  which  might  easily  have 

567 


568  FINANCING  AN  EMPIRE 

become  a  far  greater  disaster  to  Illinois  than  she  had  ever  experi- 
enced in  her  early  state  banks. 

Interesting  as  this  fact  may  be,  however,  it  is  not  surprising  when 
one  gives  due  consideration  to  the  part  played  in  early  finance  by 
the  private  bankers  of  Illinois.  One  need  only  recall  the  days  of 
George  Smith  to  realize  that  at  the  time  of  the  establishment  of  the 
national  banking  system,  the  citizens  of  Illinois  had  reason  for  a 
wholesome  respect  for  the  private  banker.  Had  it  not  been  for 
private  bankers  such  as  George  Smith  and  Alexander  Mitchell,  the 
commercial  progress  of  the  west  in  all  probability  would  have  been 
retarded  by  many  years  if  not  even  a  full  generation.  It  is,  therefore, 
small  wonder  that  the  people  of  Illinois  hesitated  to  pass  legislation 
leading  to  the  destruction  of  the  private  bank. 

As  early  as  1874  the  private  banking  business  in  Chicago  flour- 
ished to  such  an  extent  that  a  number  of  such  institutions  might  be 
found  located  west  and  north  along  the  river  as  well  as  in  the  down- 
town district,  while  there  were  several  others  outside  of  the  central 
business  section.  Unfortunately  many  of  these  were  extremely  short 
lived,  although  others  soon  sprung  up  to  take  their  places.  In  other 
sections  of  the  state  these  banks  doubtless  flourished  even  better  than 
in  Chicago,  for,  having  no  requirements  as  to  capital,  they  were 
amply  able  to  secure  the  business  of  smaller  communities  before  those 
desiring  to  establish  under  the  federal  or  State  law  could  see  their 
way  clear  to  do  so  in  undeveloped  districts  which  might  not  offer  a 
sufficient  return  on  the  required  capital  to  make  the  venture  prof- 
itable. The  stronger  private  banks  did  not  fail  and  many  of  them 
survived  even  to  the  present  decade.  Some  of  Chicago's  largest  and 
best  known  institutions  started  as  private  banks,  and  in  other  sec- 
tions the  private  bank  frequently  furnished  the  only  practical  means 
for  banking  facilities  of  any  sort  whatsoever. 

Since  private  banks  were  never  incorporated  or  subjected  to  the 
supervision  or  control  of  any  central  authority,  they  occupied  the 
same  position  in  the  eyes  of  the  law  as  would  a  private  citizen.  Their 
assets  and  liabilities,  consequently,  became  a  part  of  the  owner's  per- 
sonal estate  and  were  included  with  those  of  his  other  private  ventures. 
Consequently,  on  the  death  of  the  banker  the  debts  of  his  banking 
business,  together  with  those  of  all  his  other  private  enterprises,  be- 
came liens  against  his  estate  and  the  banking  business  was  required 
to  go  through  probate  court  along  with  everything  else  for  settlement. 
Then,  should  there  not  be  enough  for  all  creditors,  bank  depositors 


HISTORY  OF  BANKING  IN  ILLINOIS  569 

must  share  pro  rata  with  the  others,  for  the  courts  held  that  the  rela- 
tion existing  between  a  private  bank  and  its  depositor  was  that  of 
debtor  and  creditor  and  did  not  entitle  the  depositor  to  a  preference 
in  the  distribution  of  the  remaining  assets.  Thus  it  will  be  seen  that, 
while  the  banking  business  of  a  private  individual  might  be  perfectly 
solvent,  unless  the  same  could  be  said  of  all  his  other  ventures  the  de- 
positors of  his  bank  might  find  themselves  obliged  to  stand  the  losses 
suffered  in  enterprises  entirely  foreign  to  the  bank.  Men  have  been 
known  to  run  private  banks  who  at  the  same  time  were  saloon  keepers, 
barbers,  plumbers,  steamship  agents,  or  in  any  of  a  dozen  other 
trades.  Should  any  of  these  ventures  prove  to  be  a  failure,  the  finan- 
cial consequences  would  fall  pro  rata  upon  the  depositors  of  the  bank. 

Also,  among  the  less  scrupulous  bankers  there  were  men  with 
no  experience,  capital,  or  other  qualifications  for  banking.  These 
opened  up  private  banks  because  they  believed  them  a  convenient 
means  for  getting  rich  quickly.  As  is  to  be  expected,  institutions 
operated  on  so  unstable  a  foundation  constituted  a  great  menace  to 
depositors.  This  condition  was  especially  bad  in  the  foreign  dis- 
tricts, where  people  were  not  sufficiently  informed  to  be  able  to  dis- 
criminate and  therefore  placed  their  small  savings  in  great  jeopardy. 
Many  lost  all  they  had,  and  in  time  private  bank  failures  came  to  be 
almost  a  weekly  occurrence  in  the  City  of  Chicago. 

By  the  autumn  of  1912  there  had  developed  a  general  feeling 
that  all  small  bank  failures  were  due  to  criminal  operators.  While 
it  was  true  that  some  came  from  this  cause,  by  far  the  greater  num- 
ber were  the  result  of  bad  management,  insufficient  capital,  and  the 
lack  of  regulation  and  examination  requiring  the  charge-off  of  non- 
liquid  assets.  Many  a  private  banker  who  was  strictly  honest  became 
water-logged  with  bad  loans  made  to  his  friends  or  others  in  whom 
he  felt  justified  to  place  great  confidence.  Likewise  many  bankers 
attempted  to  operate  honestly  on  insufficient  capital  and  experience, 
with  the  consequence  that  when  their  banks  failed  it  was  only  natural 
for  their  victims  to  include  them  in  the  list  of  acknowledged  criminals. 
State  regulation  was  needed  as  much  for  the  protection  of  these 
bankers  as  for  their  depositor  victims. 

In  the  autumn  of  1912  the  city  council  decided  that  so  long  as 
there  was  no  state  regulation  of  private  banks,  some  supervision  must 
be  provided  by  the  City  of  Chicago.  With  the  assistance  of  the  Chi- 
cago Clearing  House  Association,  a  bill  was  drafted  and  the  state 
legislature  approached  in  an  effort  to  secure  the  desired  supervision. 


570  FINANCING  AN  EMPIRE 

While  this  bill  was  still  being  discussed,  banks  continued  to  fail  and, 
when  in  November  the  Kirby  Savings  Bank  at  5019  South  Ashland 
Avenue  was  closed  because  its  proprietor,  Dr.  William  P.  Kirby, 
was  adjudged  insane  by  the  county  court  and  it  was  learned  that  the 
bank  had  assets  of  only  $856  against  total  liabilities  of  $150,000, 
public  sentiment  demanded  prompt  action.  The  Kirby  case  was  so 
sensational  that  it  attracted  attention  far  and  wide,  illustrating  more 
than  a  few  of  the  evils  that  might  result  from  lack  of  bank  super- 
vision. When  the  receiver  attempted  to  take  possession,  he  had 
to  call  the  assistance  of  the  police  in  order  to  take  the  bank  from  the 
hands  of  a  woman  who  claimed  ownership  of  the  building  in  which 
it  was  housed  and  who  tried  to  make  good  her  claim  with  the  argu- 
ment provided  by  a  double-barreled  shotgun.  When  it  became  pos- 
sible to  investigate  affairs,  it  was  found  that  the  cashier  of  the  bank 
was  a  seventeen  year  old  relative  of  Dr.  Kirby  and  had  already  been 
arrested  on  a  charge  of  passing  a  worthless  check  as  agent  for  his 
employer. 

As  these  facts  were  revealed,  public  sentiment  against  private 
banks  became  so  intense  that  the  private  bankers  began  to  fear  for 
their  existence.  Their  committee  in  the  Illinois  Bankers'  Associa- 
tion issued  a  circular  letter  attacking  state  and  national  bankers  who 
urged  incorporation  and  supervision  of  private  banking  institutions. 
According  to  the  letter,  incorporated  bankers  were  acting  from 
purely  selfish  motives,  for  the  state  could  not  exist,  particularly  in 
smaller  communities,  without  the  aid  of  the  private  banker.  Never- 
theless, those  opposed  to  private  banking  succeeded  in  getting  a  bill 
into  the  legislature  and  in  December,  1912,  it  was  reported  that  both 
House  and  Senate  had  a  sufficient  majority  in  favor  of  such  legisla- 
tion to  pass  the  bill  at  that  session.  The  private  bankers,  however, 
rallied  to  the  fight  and  the  bill  was  hopelessly  defeated. 

In  1914  it  was  reported  that  on  an  average,  ten  private  banks 
were  failing  each  year  in  Chicago  and  in  almost  every  instance  de- 
positors were  losing  all  they  had  on  deposit.  A  check  made  in  May 
of  that  year  showed  that  there  had  been  a  million  and  a  half  dollars 
lost  in  the  city  in  the  previous  two  years  through  private  bank  failures. 
Nine  banks  had  failed  in  Chicago  during  1913  with  liabilities  of 
more  than  a  mill  ion  dollars  and  up  to  May  1914,  three  more  had 
"•one  down  with  another  half  million,  while  it  was  estimated  that  the 
sixty  unchartered  banks  still  existing  in  the  city  held  the  deposits 
of  more  than  thirty  thousand  people.     As  a  result  of  the  revelation 


HISTORY  OF  BANKING  IN  ILLINOIS  571 

of  these  figures,  bankers  throughout  the  city  became  thoroughly 
aroused,  and  claimed  that  something  must  be  done  at  once  or  confi- 
dence would  be  so  greatly  destroyed  that  all  banks  would  find  their 
existence  made  increasingly  more  difficult. 

There  were  in  Chicago  a  number  of  private  banking  institutions 
so  ably  safeguarded  as  to  merit  a  place  among  the  city's  foremost 
banks.  These,  naturally,  joined  the  incorporated  banks  in  their 
agitation  for  regulation  and  several  of  them  applied  for  state  char- 
ters. At  the  same  time  a  number  of  the  less  scrupulous,  desiring 
to  seem  in  line  with  the  general  movement  for  bank  safety,  attempted 
to  secure  state  charters  without  complying  with  state  requirements. 
Some  of  these  resorted  to  the  device  of  organizing  in  a  small  suburb 
soon  to  be  annexed  to  the  city.  In  the  fifteen  months  prior  to  the 
annexation  of  Morgan  Park,  a  village  of  four  thousand  inhabitants, 
to  the  city  of  Chicago,  eight  banks  secured  charters  to  operate  in 
Morgan  Park  on  a  capital  of  twenty-five  thousand  dollars.  The  law 
required  a  capital  of  two  hundred  thousand  dollars  for  banks  op- 
erating in  Chicago.  Since  it  was  plainly  impossible  for  so  many 
banks  to  exist  in  a  community  of  but  four  thousand  people,  it  was 
obvious  that  their  charters  had  been  secured  with  the  purpose  of 
moving  into  more  profitable  neighborhoods  as  soon  as  the  annexation 
of  Morgan  Park  had  been  accomplished.  In  fact,  some  of  the 
bankers  who  had  taken  out  these  charters  admitted  as  much  at  the 
time  and  when  a  little  later  they  tried  to  carry  out  this  purpose,  they 
were  effectively  stopped  by  the  Secretary  of  State  who,  under  stress 
of  the  agitation  then  rife,  secured  authority  to  demand  that  these 
banks  maintain  their  original  location  or  comply  with  the  capital  re- 
quirements of  a  city  the  size  of  Chicago. 

This  occurrence  again  roused  the  interest  of  bankers  in  gen- 
eral and  some  nine  private  institutions  of  high  grade  announced  their 
intention  of  going  under  state  supervision.  Among  these  was  Benja- 
min Culp  who  operated  the  Franklin  Savings  Bank,  the  second 
largest  private  bank  in  the  city.  Mr.  Culp  sent  a  letter  to  the  de- 
positors of  his  bank  announcing  himself  so  much  in  accord  with  the 
movement  for  regulating  private  banks  that  he  was  closing  out  the 
affairs  of  the  Franklin  Savings  Bank  and  affiliating  with  the  Madison 
and  Kedzie  State  Bank  instead. 

The  weaker  ones,  however,  still  continued  their  havoc.  Late  in 
October,  1914,  Michael  Potocki,  head  of  the  First  International  Com- 
mercial Bureau,  closed  his  private  bank  and  left  the  city  with  five 


572  FINANCING  AN  EMPIRE 

thousand  dollars  of  unpaid  deposits.  When  an  examination  was 
made  it  was  found  that  the  "assets"  consisted  of  two  ledgers,  a  great 
many  unpaid  bills,  and  innumerable  canceled  checks  which  were 
turned  over  to  the  state's  attorney. 

The  newspapers  of  Chicago  now  conducted  active  campaigns  for 
the  abolition  of  the  private  bank  and  each  took  unto  itself  the  credit 
for  any  progress  made.  Since,  however,  the  menace  of  these  institu- 
tions was  not  so  great  elsewhere  as  in  Chicago  and  in  some  of  the 
southern  sections  they  had  been  of  great  value  in  building  up  com- 
munities, opposition  to  regulation  in  the  state  legislature  was  so 
strong  that  the  matter  became  a  dead  issue  in  the  session  of  1915 
when  practically  all  bills  on  the  subject  died  in  committee.  On  May 
19  the  Senate  Committee  on  Banks  and  Banking  defeated  the  Latham 
bill,  a  state-wide  measure  for  the  control  of  private  banks,  and  in- 
definitely postponed  all  action  on  the  Austin  bill  which  applied  only 
to  Cook  County.  The  Thon  bill  for  the  regulation  of  private  banks 
had  been  previously  buried  in  sub-committee,  although  it  was  the 
most  lenient  measure  that  had  ever  been  introduced.  Representative 
William  G.  Thon  of  Oak  Park  had  urged  it  in  the  hope  that  if  more 
rigorous  legislation  could  not  be  accomplished,  at  least  depositors 
might  be  protected  by  legal  warnings.  His  bill,  therefore,  provided 
that  private  banks  might  operate  as  such,  provided  they  displayed 
signs  in  certain  conspicuous  places  announcing  the  fact  that  they 
were  not  under  either  state  or  national  supervision.  Also  they  were 
to  be  required  to  submit  reports  to  the  state  auditor  when  requested, 
such  as  state  banks  had  always  done. 

In  preparing  his  campaign  for  better  banking  legislation,  Repre- 
sentative Thon  compiled  a  group  of  interesting  statistics  on  private 
banking.  He  found  that  there  were  in  the  state  of  Illinois  a  total 
of  757  state  banks  and  667  private  banks.  Of  these,  91  state  banks 
and  64  private  banks  were  located  in  the  city  of  Chicago.  Between 
January  1,  1912,  and  April  1,  1915,  there  had  been  only  two  state 
bank  failures  in  Illinois.  These  were  the  two  Lorimer  banks — the 
LaSalle  Street  Trust  and  Savings  Bank  and  the  Ashland-Twelfth 
State  Bank  of  Chicago.  In  the  same  period  there  had  been  thirteen 
private  bank  failures  outside  of  Chicago  and  twenty-six  within  Chi- 
cago, making  a  total  of  thirty-nine  in  all.  The  Legislative  Reference 
Bureau  likewise  counted  the  number  of  private  banks  in  the  state  in 
1915  and  published  its  findings  as  586.  This  number  was  consider- 
ably smaller  than  that  given  by  Representative  Thon  and  was  more 


HISTORY  OF  BANKING  IN  ILLINOIS  573 

than  twice  that  shown  by  the  report  of  the  state  auditor.  Such  dis- 
crepancies, however,  should  not  be  charged  against  the  person  or 
group  making  the  count,  for  private  banks  were  so  varied  in  nature 
and  often  so  closely  allied  with  other  businesses  that  it  is  only  reason- 
able to  expect  that  any  count  would  overlook  a  large  number  of 
them. 

In  September,  1916,  Oliver  F.  Paisley,  owner  of  three  north  side 
private  banks,  failed  and  in  payment  of  his  debts  offered  his  house 
furnishings  worth  $4,000,  his  auto  worth  $800,  and  a  fewT  personal 
trinkets  of  small  value.  At  the  same  time  other  disastrous  failures 
were  going  on  in  various  parts  of  the  city.  Since  in  many  instances 
foreigners  lost  most  heavily,  these  people  lost  confidence  in  banks 
in  general  and  started  runs  on  banks  everywhere,  regardless  of  their 
condition. 

It  was  customary  for  banks  in  the  Jewish  sections  of  the  city  to 
remain  open  on  Sundays  in  deference  to  Jewish  trade.  Therefore,- 
it  became  possible  for  a  run  to  occur  in  the  Ghetto  district  of  Chicago 
on  a  day  when  no  emergency  funds  could  be  secured  from  without. 
One  Russian  Jewish  banker  found  himself  in  great  difficulty  with 
bombarding  mobs  of  his  countrymen  demanding  their  deposits,  until 
he  recalled  that  in  his  vaults  there  were  large  quantities  of  Russian 
rubles.  Immediately  he  hung  a  sign  in  his  window  announcing  that 
all  payments  on  that  day  would  be  made  in  Russian  money  and  that 
on  the  next  day  it  might  be  exchanged  by  all  who  wished  for  Ameri- 
can funds.  He  then  proved  his  solvency  to  the  depositors  of  his 
neighborhood  by  paying  out  some  twenty  thousand  dollars  in  rubles 
— a  form  of  currency  familiar  to  the  people  of  the  Ghetto  and  there- 
fore satisfactory  to  them,  although  the  ruble  was  then  undergoing  a 
rapid  decline. 

About  this  time  another  count  of  private  banks  was  made  which 
placed  the  total  number  of  such  institutions  in  Chicago  at  127,  in- 
stead of  the  approximately  sixty  previously  reported.  Of  these 
only  forty-three  were  credited  with  transacting  a  purely  banking 
business  and  most  of  them  wrere  located  in  foreign  districts.  Eighty- 
four  were  brokerage  offices  doing  a  private  banking  business,  but 
this  group  seemed  fairly  safe  and  few  failures  were  found  in  it. 

Bankers  and  others  generally  had  come  to  a  realization  of  the 
fact  that  previous  failures  to  secure  proper  legislation  on  the  subject 
of  private  banks  was  due  in  large  part  to  the  fact  that  little  or  no 
attention  had  been  paid  to  pledging  candidates  for  election  on  this 


574  FINANCING  AN  EMPIRE 

subject.  In  1916,  therefore,  agitation  became  so  active  that  every 
candidate  for  a  political  position  found  it  to  his  advantage  to  make 
known  his  views  on  the  banking  situation  and  to  pledge  his  vote  one 
way  or  another.  In  October  Representative  Thon  addressed  a  meet- 
ing at  the  Hotel  LaSalle  which  was  attended  by  national,  state,  and 
private  bankers  and  some  thirty-five  candidates  for  the  next  election 
for  the  state  legislature,  every  one  of  whom  had  pledged  himself  to 
support  legislation  for  bank  regulation. 

James  B.  Forgan  and  Charles  G.  Dawes,  who  had  been  asked 
to  assist  in  the  framing  of  a  suitable  bill  to  be  introduced  at  the  next 
session  of  the  legislature,  were  present  at  the  conference.  It  was 
soon  learned  that  one  great  difficulty  in  the  way  of  securing  legisla- 
tion, was  the  fact  that  while  everybody  present  was  in  favor  of  the 
regulation  of  private  banks,  there  seemed  no  way  of  reaching  an 
agreement  on  just  how  that  regulation  should  be  accomplished.  Mr. 
Forgan  was  of  the  opinion  that  the  Bank  of  Nova  Scotia  and  the 
Bank  of  Montreal  should  both  be  made  exempt  from  any  Illinois 
state  regulation,  as  should  likewise  such  national  private  banking 
houses  as  J.  P.  Morgan  and  Company  and  Kuhn-Loeb  and  Com- 
pany. Mr.  Forgan  argued  that  the  Canadian  banks  had  acquired 
a  vested  interest  to  do  business  in  Illinois,  had  had  a  vital  part  in 
the  upbuilding  of  the  industry  of  the  city,  and  had  come  here  in  the 
early  days  when  the  city  needed  the  capital  and  development  they 
brought.  Furthermore,  he  argued,  these  banks  were  under  more  than 
adequate  supervision  from  their  parent  institutions  and  the  Bank 
of  Montreal  was  one  of  the  strongest  in  the  country.  Likewise,  he 
felt  that  since  the  national  private  bankers  were  obviously  sound, 
they  should  not  be  humiliated  by  having  to  submit  to  any  regulations 
required  by  the  laws  of  Illinois.  Mr.  Dawes,  on  the  other  hand,  was 
of  the  opinion  that  trouble  would  arise  unless  the  law  were  made  to 
apply  to  all  and  insisted  that,  while  New  York's  financial  position 
had  developed  with  the  city,  thus  putting  that  city  in  a  position 
where  it  would  be  exceedingly  embarrassing  to  pass  laws  against 
some  of  its  strongest  and  most  valuable  institutions  on  the  ground 
that  they  were  private  banks,  the  same  situation  did  not  hold  in 
Chicago,  a  city  which  had  become  well  established  before  it  developed 
as  a  financial  center.  Chicago,  Mr.  Dawes  said,  was  just  then  com- 
ing into  her  own  in  that  respect  and  could  therefore  afford  to  estab- 
lish a  sound  groundwork  on  which  all  banks  must  build  before  any 
bad  habits  were  started. 


HISTORY  OF  BANKING  IN  ILLINOIS  575 

In  addition  to  arguments  of  this  sort,  there  was  a  growing  senti- 
ment on  the  part  of  the  bankers  against  the  efforts  of  the  city  coun- 
cil to  regulate  banking.  For  four  years  a  subcommittee  on  that 
body  had  been  attempting  to  accom2)lish  some  relief  for  the  situation 
in  Chicago;  however,  nothing  as  yet  had  been  done,  as  the  council 
was  not  only  beset  by  the  elements  in  favor  of  private  banking,  but 
even  those  members  most  strongly  for  some  such  measure  were 
divided  on  the  question  of  who  eventually  should  do  the  regulating 
of  banks.  One  faction  felt  that  it  was  a  city  matter  and  the  state 
authorities  should  be  kept  out.  Another  felt  that  such  legislation 
belonged  entirely  to  the  state  and  that  anything  the  city  did  should 
be  of  a  temporary  nature  to  take  care  of  the  situation  only  until  the 
state  had  seen  fit  to  enact  suitable  laws. 

All,  however,  were  agreed  that  private  banking  as  it  had  been 
conducted  in  Chicago  had  in  too  many  instances  become  a  source  of 
serious  loss  to  the  community  and  of  reproach  to  legitimate  banking. 
They  felt  that  legislation  should  be  provided  which  would  require 
ample  capital  in  a  bank  to  constitute  a  real  protection  to  depositors. 
It  was  then  estimated  that  there  were  556  private  banks  in  Illinois, 
358  of  which  claimed  an  aggregate  capital  of  $8,387,000  and  a  sur- 
plus of  $3,199,000,  which  amounted  to  an  average  of  a  little  more 
than  $32,000  for  each  bank.  The  remaining  198  banks  made  no 
public  statement  of  their  capitalization.  It  became  the  general  feel- 
ing that  such  banks  should  be  required  to  be  large  enough  to  make 
ample  livings  for  their  owners,  so  that  any  temptation  to  conduct 
other  businesses  on  the  side  and  use  bank  funds  therefor  might  be 
eliminated. 

In  view  of  this  sentiment,  Representative  Thon  revised  his  bill 
and  now  urged  that  all  private  banks  be  incorporated,  those  in  Chi- 
cago to  have  a  capital  of  fifty  thousand  dollars  and  in  other  sections 
of  the  state  twenty-five  thousand.  He  gave  an  address  before  the 
Private  Bankers'  Association  of  Chicago  at  the  request  of  its  mem- 
bers, many  of  whom  were  already  in  favor  of  the  reforms  he  advo- 
cated. At  the  conclusion  of  his  talk  the  organization  went  on  rec- 
ord as  giving  its  official  approval  to  legislation  providing  for  the  in- 
corporation of  private  banks,  state  inspection  and  supervision,  and 
a  minimum  capital  of  $25,000.  Furthermore,  the  association  gave 
as  its  opinion  that  if  such  regulation  could  not  be  made  to  apply  to 
the  state  as  a  whole,  at  least  it  should  be  made  a  requirement  in  cities 
over  a  certain  size. 


576  FINANCING 'AN  EMPIRE 

At  the  convention  of  the  Illinois  Bankers'  Association  held  at 
Danville  on  October  3  to  5,  1916,  the  question  of  private  bank  legis- 
lation came  up  and,  as  had  formerly  been  the  case,  the  down-state 
bankers  were  violently  opposed  to  any  action.  By  now,  however, 
they  were  willing  that  for  the  protection  of  the  city  of  Chicago  such 
regulation  might  be  established  in  Cook  County  alone.  They  feared, 
however,  that  were  a  law  to  be  passed  for  the  entire  state  in  this  re- 
gard, between  one  and  two  hundred  banks  would  be  so  seriously  af- 
fected as  to  have,  in  most  instances,  to  go  out  of  business. 

Private  banking  legislation  had  first  been  brought  officially  be- 
fore the  Illinois  Bankers'  Association  at  an  executive  council  meet- 
ing held  in  Chicago  on  January  24,  1912,  when  B.  F.  Harris  of 
Champaign,  then  president  of  the  association,  suggested  that  a  com- 
mittee be  appointed  to  draft  a  suitable  bill  placing  all  banks  in  the 
state,  excepting  those  operating  under  national  charters,  under  the 
supervision  of  the  state  banking  department.  The  council  defeated 
this  suggestion  by  a  vote  of  thirteen  to  eleven,  but  Mr.  Harris,  un- 
daunted, announced  that  those  bankers  who  were  in  sympathy  with 
the  movement  would  individually  carry  the  suggestion  to  the  legisla- 
ture. Subsequently  he  appointed  a  committee  consisting  of  Charles 
G.  Dawes,  then  president  of  the  Central  Trust  Company,  Chicago, 
chairman;  E.  D.  Hulbert,  then  vice-president  of  the  Merchants 
Loan  and  Trust  Company,  Chicago;  M.  O.  Williamson,  president  of 
the  Peoples  Trust  and  Savings  Bank,  Galesburg;  Edward  W. 
Payne,  president  of  the  State  National  Bank,  Springfield;  John  J. 
Doherty,  cashier,  First  National  Bank,  Dwight;  F.  B.  Flanders,  of 
the  Bank  of  Noble;  John  R.  Wallace  of  Bartlett  and  Wallace,  Clay- 
ton; E.  T.  Walker  of  the  Citizens'  Bank,  Macomb;  and  W.  M.  Fol- 
ger,  president  of  the  First  National  Bank  of  Vandalia.  These  bank- 
ers drew  up  a  bill  which  they  felt  met  the  needs  of  the  occasion  and 
presented  it  to  the  association  at  its  convention  held  at  Peoria  in 
September.  Again  it  met  with  defeat,  this  time  through  a  vote  of 
224  to  125.  The  subject  was  brought  up  again  two  years  later  when 
the  Illinois  Bankers'  Association  was  holding  its  annual  convention 
on  Lake  Michigan  in  September,  1914,  and  once  more  it  was  decided 
to  take  no  favorable  action.  The  time,  the  members  of  the  Associa- 
tion said,  was  not  then  opportune  for  such  action,  and  they  found 
reasons  for  standing  by  this  opinion,  in  spite  of  the  fact  that  twenty- 
one  private  banks  had  closed  their  doors  in  the  state  during  the  pre- 
ceding eight  months;  seventeen  of  these  had  been  in  Chicago.    Again 


HISTORY  OF  BANKING  IN  ILLINOIS  577 

in  1916  Charles  G.  Dawes  ajDproached  the  convention  held  at  Dan- 
Wile  and  attempted  to  obtain  a  reversal  in  the  stand  of  the  associa- 
tion on  this  matter,  but  on  the  whole  little  assistance  toward  abolish- 
ing private  banks  was  ever  secured  from  the  Illinois  Bankers'  Assso- 
ciation. 

Likewise  the  City  Council,  which  had  spent  a  number  of  years 
drawing  up  an  ordinance,  found  itself  unable  to  secure  favorable 
action,  even  though  J.  B.  Forgan  and  other  members  of  the  Clear- 
ing House  Committee  had  in  June,  1914,  given  their  indorsement 
to  the  principles  underlying  that  which  had  been  drawn  up.  The 
plan  was  constantly  hindered  and  delayed  in  committee  meetings  and 
when  in  May,  1916,  it  came  up  before  the  aldermen,  it  was  defeated 
by  a  vote  of  25  to  38. 

In  spite  of  delays  and  hindrances  on  every  hand,  public  senti- 
ment on  the  subject  was  such  that  on  June  7,  1917,  the  Buck-Aus- 
tin Bill  passed  the  House  with  a  vote  of  98  to  42.  This  required  that 
all  banks  in  the  state  be  under  either  state  or  national  supervision. 
Even  after  things  had  gone  this  far,  however,  the  down-state  inter- 
ests, opposed  to  regulation  of  private  banks,  attempted  to  have  the 
bill  so  amended  as  to  exempt  from  its  provisions  all  private  banks 
which  had  been  in  existence  for  seven  years  or  more.  In  this,  how- 
ever, they  were  unsuccessful  and  on  June  22,  1917,  the  bill  was 
finally  approved  to  provide  that  no  person,  firm  or  partnership  might 
transact  the  business  of  banking  or  the  business  of  receiving  money 
upon  deposit,  or  use  the  word  bank  or  banker  in  connection  with  its 
business,  or  transact  the  business  of  transmitting  money  to  foreign 
countries,  or  buy  or  sell  foreign  money  or  receive  money  on  deposit 
to  be  transmitted  to  foreign  countries,  except  express,  steamship, 
and  telegraph  companies  which  might  continue  their  legitimate  busi- 
ness of  receiving  money  to  be  transmitted.  Anyone  violating  this 
law  was  to  be  punished  with  a  fine  of  not  more  than  one  thousand 
dollars,  or  one  year  in  prison,  or  both.  All  banks  in  the  state  were 
required  to  be  incorporated  within  ninety  days  after  the  passage  of 
the  bill,  and  thereafter  they  were  allowed  three  years  in  which  to  con- 
vert their  assets  and  come  under  full  state  regulation  and  inspection. 
While  it  was  provided  that  banks  must  have  a  capital  stock  of  at  least 
two  hundred  thousand  dollars  to  operate  in  Chicago,  those  in  smaller 
communities  were  permitted  the  right  to  establish  on  as  little  as  ten 
thousand  dollars  in  some  instances. 

It  is  interesting  and  perhaps  significant  to  note  that  exactly  one 


578  FINANCING  AN  EMPIRE 

week  after  the  Buck-Austin  Bill  had  passed  the  Senate,  Graham 
and  Sons'  Bank,  one  of  the  oldest  and  largest  private  banking  insti- 
tutions in  Chicago,  closed  its  doors.  This  bank  had  for  years 
been  considered  the  "Gibraltar  of  finance"  and  had  been  an  active 
factor  in  delaying  action  for  the  regulation  of  private  banks.  It  had 
been  insolvent  for  at  least  fourteen  months  prior  to  its  closing,  but 
since  no  report  had  ever  been  made  this  fact  was  not  generally  known 
and  depositors  who  had  every  faith  in  its  founder,  entrusted  all  they 
had  to  the  bank.  On  frequent  occasions  Andrew  Graham,  founder 
of  the  bank,  had  been  urged  by  his  friends  to  incorporate  and  go 
under  state  regulation,  but  he  had  always  refused,  saying  that  the 
case  of  his  bank  was  "different"  and  not  suited  to  state  requirements. 
A  third  of  the  bank's  assets  had  been  tied  up  in  slow  moving  real  es- 
tate which  could  not  be  liquidated  in  time  of  need.  Thus,  when  a 
large  loan  was  called  and  there  were  not  sufficient  quick  assets  to 
meet  it,  failure  was  the  only  alternative  left.  Fifteen  thousand  pa- 
trons with  more  than  four  million  dollars  in  deposits  suffered  the 
consequences. 

It  was  estimated  that  at  the  time  the  law  was  passed  Illinois  had 
more  than  one-fourth  of  all  the  private  banks  in  the  United  States. 
More  than  sixty  of  these  had  failed  in  the  previous  seven  years  in 
Cook  County  alone,  and  it  was  estimated  that  through  these  failures 
at  least  eight  million  dollars  in  deposits  had  been  lost  and  almost 
twenty-five  thousand  depositors  with  average  deposits  of  less  than 
three  hundred  dollars  had  become  involved. 

The  Buck-Austin  Bill  allowed  ample  time  in  which  private  banks 
might  make  the  transition  to  state  institutions  without  undue  loss. 
Its  requirements  were  not  to  go  fully  into  effect  until  January  1, 
1921.  Any  private  bank  so  desiring  might  become  a  state  institu- 
tion and  comply  with  the  law  at  any  time  prior  to  that  date,  but  a 
very  large  majority  of  such  institutions  preferred  to  continue  oper- 
ations without  state  supervision  as  long  as  possible.  Forty  of 
Chicago's  private  banks  waited  until  approximately  that  date  before 
going  out  of  existence,  while  some  twenty  others  submitted  to  state 
supervision  and  made  good  on  the  $200,000  capital  requirement. 

The  effect  the  law  had  on  the  formation  of  state  banks  through- 
out Illinois  as  a  whole  is  indicated  by  the  statistics  issued  by  the 
comptroller's  office  which  show  state  banks  to  have  been  organized 
in  the  following  numbers: — 


HISTORY  OF  BANKING  IN  ILLINOIS  579 

Number  of  Banks  Number  of  Banks 

Year  Organized  in  Whole  State  Organized  in  Chicago 

1917 59  6 

1918 26  1 

1919 124  22 

1920 416  15 

1921   50  22 

While  these  figures  do  not  in  any  way  indicate  how  many  of  these 
new  state  banks  had  formerly  existed  as  private  banking  institutions, 
the  fact  of  so  great  an  increase  during  the  years  the  Buck- Austin 
Bill  was  going  into  effect  is  significant. 


Vol.  1—19 


CHAPTER  XXXIII 
DEVELOPMENT  OF  BANKING  LAW 

Illinois  banking  law  and  its  amendment  of  1903 — Cases  of  Spalding,  Dreyer  and  Paulsen 
— Securing  release  on  an  amendment  made  after  conviction — Paisley,  Lorimer  and 
Meadowcroft  cases — Amendments  of  1924. 

Important  banking  legislation  has  been  noted  in  these  chapters 
in  connection  with  those  events  which  provoked  its  passage.  The 
mere  passing  of  laws,  however,  has  not,  in  many  instances,  been  suffi- 
cient to  constitute  actual  bank  regulation.  Often  such  acts  had  to 
be  tried  and  tested,  and  an  important  part  of  the  present-day  bank- 
ing legislation  has  been  developed  in  the  office  of  the  state's  attor- 
ney, much  of  it  during  the  decade  beginning  with  1896.  Nor  is  it 
strange  that  this  development  was  largely  in  Cook  County  and  fol- 
lowed the  panic  and  depressions  of  1893  to  1896.  It  so  happened 
that  during  the  eight  years  when  these  cases  were  being  adjudicated, 
Charles  S.  Deneen  was  State's  Attorney  and  had  surrounded  him- 
self with  a  staff  of  able  assistants,  several  of  whom  have  served  as 
judges  of  various  courts  in  Cook  County. 

The  legislative  act  for  the  protection  of  bank  depositors,  passed 
in  1879,  had  made  it  a  criminal  offense,  punishable  by  fine  or  fine 
and  imprisonment,  for  a  banker  to  receive  a  deposit  of  money  or 
other  valuable  article  transferable  by  delivery,  after  insolvency, 
whereby  the  deposit  so  made  might  be  lost  to  the  depositor.  That 
act,  however,  did  not  expressly  state  that  knowledge  of  the  insolvency 
was  an  element  of  the  offense.  In  1903  the  act  was  amended  to  re- 
quire that  a  banker  to  be  liable  for  punishment  as  a  criminal  must 
know  of  his  insolvent  condition  at  the  time  of  receiving  deposits.  The 
act  first  received  construction  by  the  Supreme  Court  of  Illinois,  in 
the  case  of  the  Meadowcroft  Brothers,  filed  at  Ottawa  on  March  28. 
1896,  in  which  Charles  J.  and  Frank  C.  Meadowcroft  were  tried  be- 
cause of  losses  sustained  in  their  bank  which  failed  in  Cook  County 
in  1893.     The  court  then  held  that  a  banker  was  presumed  to  know 

580 


HISTORY  OF  BANKING  IN  ILLINOIS  581 

at  the  time  of  receiving  the  deposit  whether  or  not  lie  or  the  bank 
was  solvent,  and  that  the  deposit  was  "lost"  to  the  depositor,  within 
the  meaning  of  the  statute,  when  by  reason  of  the  insolvency  he  was 
deprived  of  his  contract  right  to  have  the  money  refunded  on  de- 
mand or  paid  out  on  his  checks.  The  object  of  the  statute,  it  was 
said,  was  to  protect  the  public  from  being  induced  to  deposit  money 
with  insolvent  bankers,  and  that  as  the  business  of  banking  was  con- 
cerned with  public  interest,  it  was  subject  to  regulation  within  the 
general  police  powers  of  the  state. 

In  the  following  eight  years  after  the  rendition  of  this  decision, 
several  bankers  connected  with  failed  state  banks  were  prosecuted 
under  this  act.  Cases  which  by  reason  of  their  importance  engaged 
public  attention  and  were  carried  to  the  higher  courts,  were  those 
of  Charles  S.  Spalding,  president  of  the  Globe  Savings  Bank,  who 
was  charged  with  dissipating  several  hundred  thousand  dollars  of 
University  of  Illinois  funds;  Edward  S.  Drever  of  the  banking  firm 
composed  of  himself  and  Robert  Berger;  and  William  A.  Paulsen, 
president  of  the  Central  Trust  and  Savings  Bank.  Because  of  the 
amounts  involved,  prominence  of  the  participants,  penitentiary  sen- 
tences, and  their  resort  to  every  conceivable  technicality  of  the  law 
to  prevent  conviction  and  enforcement  of  sentences,  the  prosecutions 
of  these  three  attracted  much  public  attention. 

Spalding  was  convicted  in  1898  under  an  indictment  for  embez- 
zling and  converting  to  his  own  use  some  twenty-eight  thousand  dol- 
lars of  bonds  which  came  into  his  possession  as  treasurer  of  the  Uni- 
versity of  Illinois.  In  need  of  funds  for  his  personal  use,  he  had 
borrowed  twenty-five  thousand  and  pledged  the  bonds  of  the  Uni- 
versity as  collateral.  At  the  time  the  Globe  Savings  Bank,  of  which 
Spalding  was  president,  became  insolvent,  the  note  was  still  unpaid, 
and  the  collateral  in  possession  of  the  holder  of  the  note.  Spalding, 
as  treasurer  of  the  University,  was  held  to  be  a  public  officer  charged 
with  a  public  trust  in  receiving,  holding,  and  disposing  of  public 
funds  and  property  and  was,  therefore,  liable  to  punishment  under 
the  act  under  which  he  was  indicted.  He  was  further  made  charge- 
able with  criminal  intent,  provided  the  acts  with  which  he  was  charged 
were  fraudulently  done. 

Drever  was  prosecuted  for  failure  to  return  upon  demand  of  his 
successor  in  office  as  treasurer  of  the  West  Chicago  Park  Commis- 
sioners, $316,000  of  its  funds.  When  this  money  had  come  into  his 
hands  as  treasurer  of  the  park  commissioners,  it  was  first  deposited 


582  FINANCING  AN  EMPIRE 

in  his  own  bank,  under  his  own  name  as  treasurer,  which  under  the 
state  law  he  was  permitted  to  do.  About  that  time  the  affairs  of  the 
bank  became  exceedingly  bad  and  Dreyer,  in  the  hope  of  assisting 
the  institution,  transferred  the  funds  belonging  to  the  West  Chicago 
Park  Commissioners  to  his  personal  account.  Consequently,  when 
the  Dreyer  &  Company  failure  came,  all  of  this  money  was  lost,  as 
it  was  used  to  pay  obligations  of  the  banking  firm.  The  case  was 
tried  three  times  in  the  lower  court,  heard  twice  in  the  Supreme  Court 
of  Illinois,  and  under  different  forms  went  twice  to  the  United 
States  Supreme  Court.  The  conviction  ultimately  stood  and  Dreyer 
served  a  term  in  the  penitentiary. 

Meantime,  while  Dreyer  was  being  tried  for  the  mismanagement 
of  the  funds  of  the  West  Chicago  Park  Commissioners,  his  partner, 
Berger,  was  prosecuted  on  the  charge  of  having  received  deposits 
after  the  bank  had  become  insolvent.  Berger  likewise  was  found 
guilty  and  his  sentence,  which  called  for  a  fine  only,  was  not  ap- 
pealed. 

One  of  the  defenses  made  by  Dreyer  was  that,  inasmuch  as  he 
had  been  required  under  the  law  to  account  for  interest  as  a  custodian 
of  public  funds  on  the  daily  balances  from  time  to  time  in  his  cus- 
tody, he  had  become  technically  owner  of  the  funds  and  was  liable 
onlv  civilly  on  his  bond.  This  contention  was  held  bv  the  courts  to 
be  without  foundation.  Before  his  conviction  he  sought  unsuccess- 
fully to  secure  release  by  a  writ  of  habeas  corpus  in  the  Federal 
Court,  but  this  was  denied  and  the  ruling  against  him  was  unsuccess- 
fully carried  to  the  Supreme  Court  of  the  United  States. 

The  Paulsen  case  was  particularly  interesting  in  that  it  brought 
out  a  situation  in  which  a  convicted  man  was  able  to  secure  his  free- 
dom on  the  ground  that  the  law  under  which  he  had  been  convicted 
was  amended  after  a  decision  had  been  reached  in  his  case. 

Back  in  1891  the  firm  of  Paulsen  and  Sparre,  then  engaged  in  the 
real  estate  or  some  allied  business,  and  the  Western  Trust  and  Sav- 
ings Bank  of  Chicago,  decided  to  consolidate  and  incorporate  as  the 
Central  Trust  and  Savings  Bank.  The  new  institution  was  incor- 
porated under  state  laws  with  a  capital  stock  of  the  two  hundred 
thousand  dollars  required  by  the  state  banking  law  for  such  an  insti- 
tution doing  business  in  the  city  of  Chicago.  All  of  this  stock  was 
subscribed  to  by  those  who  held  an  interest  in  either  of  the  merging 
institutions,  and  all  contributing  were  assured  that  the  subscriptions 


HISTORY  OF  BANKING  IN  ILLINOIS  583 

were  not  to  be  paid  in  cash,  but  in  the  assets  of  the  two  companies 
thus  being  merged. 

Those  responsible  for  the  undertaking,  however,  were  well  aware 
that  the  state  law  required  all  capital  stock  to  be  paid  in  cash  and, 
knowing  that  the  auditor  of  public  accounts  would  require  cash  be- 
fore issuing  a  charter,  they  made  an  arrangement  with  the  Atlas 
National  Bank  of  Chicago  whereby  that  bank  would  place  the  nec- 
essary two  hundred  thousand  dollars  in  the  vaults  of  the  new  Cen- 
tral Trust  and  Savings  Bank,  to  remain  there  ostensibly  as  money 
belonging  to  the  new  bank  until  after  the  auditor  had  made  his  ex- 
amination. In  conformance  with  this  arrangement,  the  Atlas  Na- 
tional Bank  put  the  required  cash  into  the  hands  of  one  of  its  de- 
tectives and  thus  transferred  it  to  the  vaults  of  the  new  institution, 
keeping  it  always  under  guard  of  its  own  man,  and  removing  it  from 
the  vaults  of  the  Central  Trust  and  Savings  Bank  just  as  soon  as  it 
had  been  displayed  to  the  auditor  as  money  received  in  payment  of 
stock  subscriptions  and  the  charter  ordered  issued. 

Thereafter,  that  which  the  Central  Trust  and  Savings  Bank 
listed  as  "cash  assets"  in  its  reports,  consisted  of  a  number  of  notes 
and  other  paper  accumulated  by  the  two  previous  organizations,  most 
of  which  was  non-liquid  paper  or  uncollectable  notes.  On  the  very 
first  quarterly  examination  made  by  the  auditor,  some  thirty  thou- 
sand dollars  of  the  bank's  assets  were  rejected  as  insufficient  or  worth- 
less, and  Paulsen  then  admitted  that  some  sixty-five  hundred  dollars 
had  never  been  paid  or  collected  while  the  notes  representing  this 
amount  were  nevertheless  being  carried  as  cash  assets  of  the  bank. 

On  March  2,  1896,  the  Central  Trust  and  Savings  Bank  made 
an  assignment  for  the  benefit  of  its  creditors.  William  A.  Paulsen 
was  then  president  of  the  bank,  to  which  position  he  had  succeeded 
about  December,  1894,  and  prior  to  which  time  he  had  been  prom- 
inent in  the  control  of  the  bank's  affairs.  Liquidation  resulted  in 
the  payment  of  seventeen  cents  on  the  dollar  to  depositors.  Later 
it  developed  that  on  several  occasions  previously  the  bank  had  been 
forced  to  borrow  funds  in  order  to  meet  the  demands  of  its  depos- 
itors and  also  to  buy  out  a  few  of  those  stockholders  who  had  begun 
to  suspect  the  state  of  affairs  and  were  therefore  apt  to  make  trouble 
for  the  bank  in  its  relation  to  its  depositors.  The  following  October 
the  case  came  up  on  the  ground  that  deposits  had  been  accepted  when 
the  bank  was  not  solvent,  but  no  settlement  was  made  and  the  case 


584  FINANCING  AN  EMPIRE 

dragged  on  until  Charles  S.  Deneen  came  into  office  as  state's  attor- 
ney for  Cook  County  and  determined  to  clean  it  off  the  docket. 

As  the  case  then  stood,  under  the  law  Paulsen  could  he  fined  dou- 
hle  the  amount  of  the  claim  of  the  depositor  who  had  brought  the 
suit  against  him,  thus  ending  the  matter  with  a  fine  of  some  three 
hundred  dollars,  for  although  there  were  many  charges  against  Paul- 
sen, the  one  under  consideration  involved  a  loss  of  only  approxi- 
mately one  hundred  and  fifty  dollars.  Assistant  State's  Attorney 
Albert  C.  Barnes,  who  was  assigned  to  the  case,  suggested  to  Paul- 
sen that  he  take  advantage  of  this  technicality,  plead  guilty,  and  thus 
get  off  with  nothing  more  than  the  small  fine.  Paulsen,  however, 
refused  to  take  this  advice  and  said  he  would  stand  trial.  He  asked, 
however,  that  trial  by  jury  be  waived,  which  Attorney  Barnes 
granted. 

When  the  case  went  to  court,  Attorney  Barnes  made  out  a  prima 
facie  case  on  the  basis  of  having  accepted  deposits  when  the  bank  was 
insolvent.  It  will  be  recalled  that  the  law  did  not  yet  specify  that 
the  banker  must  realize  that  his  bank  was  insolvent  at  the  time. 
Greatly  to  the  surprise  of  the  attorney,  Paulsen,  in  testifying  on  his 
own  behalf,  insisted  that  all  the  securities  he  was  carrying  as  cash 
and  which  were  actually  valueless  had  been  worth  the  amount  at 
which  he  had  been  carrying  them  and  could  have  been  sold  at  that 
amount  except  for  the  mismanagement  of  the  receiver  in  charge. 
The  attorney  in  view  of  Paulsen's  previous  admissions,  promptly 
asked  for  and  was  granted  a  postponement  of  the  trial  until  such 
time  as  he  might  look  into  the  situation. 

When  access  was  had  to  the  books  of  the  failed  bank  it  was  dis- 
covered that  there  was  no  stock  account.  One  of  the  bank's  book- 
keepers was  summoned  and  asked  where  that  account  was  kept.  He 
gave  the  surprising  information  that  there  never  had  been  any  such 
account;  thereupon  it  was  definitely  established  that  there  never  had 
been  any  capital  stock,  except  the  notes  and  securities  which  it  was 
contended  had  been  valueless.  Various  devices  had  been  resorted  to 
from  time  to  time  to  conceal  from  the  bank  examiners  the  worthless 
character  of  these  securities  and  the  condition  of  the  bank.  On  one 
occasion,  to  prevent  disclosure  of  its  true  condition,  a  fictitious  draft 
on  a  company  in  London  for  $88,500  was  reported  as  a  cash  item  to 
the  state  auditor  and,  after  having  served  its  purpose,  was  withdrawn 
as  an  item  of  the  resources  of  the  bank. 

This  discoverv  made  it  illegal  to  conduct  the  trial  without  a  jury, 


HISTORY  OF  BANKING  IN  ILLINOIS  .      585 

so  a  new  trial  under  a  new  judge  was  secured,  the  evidence  heard, 
and  Paulsen  found  guilty  and  sentenced  to  a  small  fine  and  an  inde- 
terminate period  of  confinement  in  the  state  penitentiary  at  Joliet. 

By  the  time  the  case  was  completed,  it  was  February  of  1902, 
and  only  a  year  and  a  quarter  later  the  law  was  amended  to  require 
that  a  banker  must  know  his  bank  to  be  insolvent  at  the  time  he  re- 
ceived deposits  in  order  to  become  liable  for  punishment  for  embez- 
zlement. Consequently,  although  Paulsen's  conviction  had  been  sus- 
tained by  both  the  Supreme  Court  of  Illinois  and  by  the  dismissal 
of  his  appeal  to  the  United  States  Supreme  Court,  he  obtained  his 
discharge  through  a  writ  of  habeas  corpus  secured  before  a  judge  in 
another  part  of  the  state  on  the  claim  that  as  the  act  had  been 
amended  since  his  conviction,  the  conviction  was  invalid.  Under  the 
provisions  of  the  law,  the  people  were  afforded  no  right  to  a  review 
of  the  decision  and  so  Paulsen  obtained  his  freedom  in  1903,  after 
having  actually  served  only  some  six  months  in  the  penitentiary  on 
proved  criminal  undertakings  dating  back  to  1891,  and  after  having 
had  his  case  in  the  courts  for  about  six  years. 

The  points  made  on  the  review  of  these  cases  in  the  higher  courts 
involved  many  legal  technicalities,  more  of  them,  however,  relating 
to  criminal  procedure  than  to  construction  of  the  acts  of  the  legisla- 
ture under  which  they  were  indicted.  This  was  also  true  of  the  more 
prominent  cases  subsequently  prosecuted  under  this  act.  Such  was 
the  Paisley  case  which  gained  widespread  interest,  not  because  it  had 
any  bearing  on  the  construction  of  the  act,  but  rather  because  of 
the  amount  of  money  involved  and  the  criminal  methods  employed 
in  arriving  at  that  loss  which  the  trial  revealed. 

William  H.,  Oliver  F.,  and  James  T.  Paisley  opened  a  private 
bank,  called  the  Edgewater  Bank,  in  Chicago  in  1908,  and  conducted 
it  as  such  until  1914  when  it  was  reorganized  as  a  state  institution. 
Thereafter  the  Paisleys  continued  in  control  only  for  the  space  of 
seven  or  eight  months,  as  the  state  auditor  was  not  satisfied  with 
their  management.  Thereupon  the  Paisleys  organized  a  second  pri- 
vate bank,  called  the  Summerdale  Savings  Bank,  and  in  July,  1915, 
another,  the  North  Shore  Savings  Bank,  in  the  location  of  the  old 
Edgewater  State  Bank  which  had  meantime  been  moved.  About  a 
year  later  a  branch  of  the  North  Shore  Savings  Bank  was  opened 
which  survived  just  six  weeks.  On  September  19,  1916,  the  Paisleys 
voluntarily  closed  the  doors  of  all  their  banks  and  the  following  Oc- 
tober were  charged  with  having  received  deposits  when  insolvent. 


586  FINANCING  AX  EMPIRE 

At  the  time  of  the  crash  total  assets  in  the  possession  of  these 
men  amounted  to  $73,658.55,  while  total  liabilities  were  $498,095.31 
of  which  amount  $256,345.13  was  due  depositors.  The  trial  showed 
that  the  Paisleys  had  been  insolvent  in  1914,  when  they  were  required 
to  surrender  control  of  the  Edgewater  State  Bank,  and  in  1915, 
when  they  organized  the  North  Shore  Savings  Bank,  and  that  they 
were  barely  able  to  keep  their  doors  open  when  they  organized  the 
branch  of  that  bank  just  six  weeks  before  going  into  bankruptcy. 
Xeedless  to  say,  large  amounts  of  money  were  lost  in  this  crash, 
and  it  was  found  that  much  of  the  trouble  had  been  due  to  the  fact 
that  the  Paisley  brothers  had  been  extremely  indiscreet  in  choosing 
the  firms  and  individuals  to  whom  loans  were  made  and  consequently 
vast  sums  were  put  into  the  hands  of  bankrupts.  It  was  on  this  ac- 
count that  the  case  excited  great  attention  and  will  be  long  remem- 
bered by  people  living  in  and  near  Chicago  at  the  time.  This  case, 
however,  is  only  typical  of  a  number  of  others,  all  of  which  are  of 
some  historical  interest  because  they  represent  occurrences  in  the 
banking  community,  but  none  of  which  have  any  very  definite  bear- 
ing on  the  development  of  banking  law. 

In  this  respect  the  Lorimer  case,  which  has  been  amply  described 
elsewhere  in  this  volume,  was  similar  to  that  of  the  Paisleys.  How- 
ever, in  the  trial  of  Munday,  who  was  the  business  head  of  the  Lori- 
mer banks,  it  was  definitely  established  that  knowledge  of  insolvency 
was  no  longer  necessary  to  constitute  the  offense,  nor  was  fraudu- 
lent intent  required.  Only  the  fact  of  insolvency  was  essential  to  con- 
stitute the  offense  and  that  must  be  proved. 

It  might  also  be  mentioned  at  this  point  that  the  Meadowcroft 
case  had  shown  that  loss  of  the  entire  deposit  was  not  essential  to 
complete  the  offense.  So  long  as  any  amount  was  lost,  the  law  could 
be  applied. 

It  is  probable  that  recollections  of  the  catastrophies  precipitated 
by  criminal  banking,  such  as  that  undertaken  by  men  who  disregard 
the  necessity  of  capital,  were  in  large  part  responsible  for  the 
changes  in  banking  law  submitted  to  the  people  of  Illinois  in  Novem- 
ber, 1924.  One  of  these  changes  was  designed  to  prevent  the  whole- 
sale establishment  of  branch  banks  on  the  limited  capital  of  one  main 
institution.  This  amendment  was  prepared  by  the  Chicago  and  Cook 
County  Bankers'  Association  and  introduced  into  the  house  of  rep- 
resentatives at  its  request.  It  was  made  to  read:  "No  bank  shall 
establish  or  maintain  more  than  one  banking  house  or  receive  depos- 


HISTORY  OF  BANKING  IN  ILLINOIS  587 

its  or  pay  checks  at  any  other  place  than  such  house;  and  no  banks 
shall  establish  or  maintain  any  branch  bank,  branch  office,  or  addi- 
tional office  or  agency  for  the  purpose  of  conducting  any  of  its  busi- 
ness." 

A  second  amendment,  approved  by  the  people  at  the  same  elec- 
tion, was  drawn  up  by  State  Auditor  Andrew  W.  Russel  and  en- 
dorsed by  the  Chicago  and  Cook  County  Bankers'  Association.  It 
made  difficult  the  securing  of  bank  charters  by  increasing  the  number 
of  persons  required  to  sign  the  application  from  five  to  twenty-five, 
depending  on  the  size  of  the  town  in  which  it  was  proposed  to  locate 
the  new  bank.  In  addition,  it  was  now  required  that  financial  state- 
ments of  each  of  the  signers  accompany  every  application  for  a  bank 
charter  and  that  before  the  charter  be  issued  each  subscriber  to  the 
new  bank's  capital  stock  must  furnish  the  auditor  with  an  affidavit 
stating  that  he  is  the  owner  of  property  in  his  own  right,  clear  of  all 
indebtedness,  having  a  market  value  at  least  equal  to  the  par  amount 
of  the  stock  to  which  he  has  subscribed.  In  this  way  it  was  hoped 
that  there  might  be  assured  a  more  responsible  class  of  stockholders 
and  that  it  would,  in  the  future,  become  less  difficult  to  collect  assess- 
ments in  the  event  that  the  bank  might  become  financially  involved. 

In  addition  to  throwing  these  safeguards  about  the  guaranty  of 
capital  for  any  new  banks  which  might  open  for  business  in  Illinois, 
capital  requirements  were  raised  to  figures  deemed  large  enough  to 
put  banking  in  Illinois  on  a  high  level  of  protection.  Under  the 
amendment  the  new  minimum  for  banks  in  cities  of  fifty  thousand  or 
more  was  placed  at  two  hundred  thousand  dollars,  while  downstate 
banks  in  smaller  communities  were  required  to  have  twenty-five  thou- 
sand dollars  in  capital  before  they  might  enter  upon  business. 

Thus,  through  the  efforts  of  the  state  legislature  and  the  courts,, 
the  banks  of  the  state  of  Illinois  are  rapidly  finding  it  impossible 
to  exist  unless  they  are  founded  upon  an  extremely  sound  basis,  and 
that  state  which  at  the  time  of  the  Civil  war  was  openly  commented 
upon  as,  having  the  worst  banking  system  in  the  country,  and  which 
in  comparatively  recent  years  drew  the  unfavorable  attention  of  the 
nation  to  its  outrageous  system  of  private  banking  institutions,  is 
rapidly  reaching  a  point  where  its  banks  will  be  models  of  a  standard 
everywhere  approved. 


CHAPTER  XXXIV 
MEN- DEVELOPERS  OF  FINANCIAL  ILLINOIS 

Gurdon  S.  Hubbard — Alexander  Mitchell — William  F.  Coolbaugh — Solomon  A.  Smith- 
Samuel  M.  Nickerson — Lyman  J.  Gage — James  B.  Forgan — Byron  L.  Smith — John 
J.  Mitchell— William  H.  Mitchell— Levi  Z.  Leiter— Marshall  Field— Samuel  W. 
Alter  ton — Norman  B.  Ream — Edward  F.  Swift — Edward  Morris — Philip  D.  Armour 
— Cyrus  Hall  McCormick — George  M.  Pullman — James  Laurence  Laughlin. 

It  is  fitting  that  the  history  of  banking  in  Illinois  should  contain 
some  record  of  the  personalities  which  played  an  important  part  in  its 
upbuilding.  Those  men  who  deserve  such  mention  readily  divide 
themselves  into  two  distinct  groups — bankers,  and  men  who  devoted 
themselves  to  the  upbuilding  of  trade  and  commerce. 

Gurdon  S.  Hubbard  was  the  first  of  the  former  group  to  estab- 
lish himself  in  Chicago.  Born  in  Windsor,  Vermont,  in  August, 
1802,  he  spent  his  early  youth  acquiring  a  knowledge  of  trade  for 
which  he  showed  a  remarkable  aptitude.  As  a  boy  he  established 
himself  in  the  poultry  business  between  northern  Vermont  and 
Canada  and  in  this  way,  even  though  handicapped  by  having  no  capi- 
tal and  no  influential  friends,  he  managed  to  make  a  good  living. 
When  he  was  sixteen  Mr.  Hubbard  bound  himself  for  a  period  of 
five  years  to  an  agent  of  the  American  Fur  Company  and  with  him 
went  into  the  wilds  of  the  great  northwest  territory.  These  journeys 
soon  led  to  Illinois.  It  is  believed  that  as  early  as  November,  1818, 
he  arrived  at  Fort  Dearborn,  but  Mr.  Hubbard,  bound  by  his  con- 
tract and  a  salary  of  one  hundred  and  twenty  dollars  a  year,  was  not 
yet  free  to  remain  on  the  site  of  the  city  whose  first  banker  he  was 
destined  to  become.  Instead,  he  was  required  to  push  on  into  the 
interior  where  for  a  number  of  years  he  plied  his  trade  over  a  wide 
territory. 

In  1821  Mr.  Hubbard  again  visited  Chicago  and  thereafter  had 
so  many  business  transactions  with  the  people  of  the  settlement  as  to 
become  well  and  favorably  known  among  them.  He  remained  with 
the  American  Fur  Company  for  two  years  after  his  contract  had 

588 


HISTORY  OF  BANKING  IN  ILLINOIS  589 

expired  and  succeeded  in  accumulating  enough  money  so  that  by  1827 
he  was  in  a  position  to  purchase  the  company's  franchises  and  good 
will.  Then  he  fitted  out  a  caravan  consisting  of  nearly  fifty  ponies 
which  lie  bought  from  the  Indians  and  established  trading  posts  at 
intervals  of  thirty  to  fifty  miles  between  Chicago  and  the  Wabash 
country.  These,  in  time,  marked  the  only  well  traveled  road  in  that 
section  and  it  was  known  as  "Hubbard's  Trail." 

For  a  number  of  years  Mr.  Hubbard  made  Danville  his  head- 
quarters and  lived  there.  Then,  as  settlements  appeared  along  his 
trail,  the  trade  with  the  Indians  rapidly  decreased  and,  one  after 
another,  the  trading  posts  were  abandoned.  In  1833  the  Indian  title 
was  extinguished  and  it  was  required  that  within  the  following  two 
years  the  Indians  leave  that  section  of  the  country.  Then  Mr.  Hub- 
bard completely  abandoned  his  trading  posts  and  became  a  perma- 
nent resident  of  Chicago.  He  moved  to  the  city  in  1834,  spent  the 
next  twenty  years  as  the  most  prominent  merchant,  and  established 
one  of  the  largest  shipping,  commission,  packing  and  forwarding 
trades  in  the  city.  So  highly  respected  was  Mr.  Hubbard  that  he 
held  practically  every  post  of  honor  and  trust  that  the  citizens  could 
give  him. 

In  1829,  some  years  before  making  Chicago  his  permanent  home, 
Mr.'  Hubbard  participated  in  the  first  sale  of  canal  lots;  he  purchased 
two,  one  on  the  northwest  corner  of  Lake  and  La  Salle  streets,  and 
the  other  on  the  southwest  corner  of  La  Salle  and  South  Water 
streets.  These  were  eighty  by  one  hundred  feet  in  size.  He  paid  a 
price  of  $33.33  each  for  them.  Even  by  1836  these  same  lots  would 
have  found  ready  purchasers  at  one  hundred  thousand  dollars.  Mr. 
Hubbard  disposed  of  his  holdings  a  bit  at  a  time  and  in  the  aggregate 
realized  eighty  thousand  dollars  on  an  investment  of  but  $66.66. 

We  have  said  that  Gurdon  S.  Hubbard  was  Chicago's  first  banker 
which,  indeed,  was  the  case.  Considering  his  many  enterprises,  it  is 
doubtless  true  that  had  banks,  as  we  now  know  the  term,  been  ap- 
plicable to  conditions  in  those  early  pioneer  days,  Mr.  Hubbard  would 
in  all  probability  have  established  a  formal  banking  institution.  Since 
this  was  not  feasible,  he  did  the  type  of  banking  most  useful  at  the 
time.  By  establishing  a  strong  line  of  credit  in  the  east,  he  was 
able  to  accommodate  merchants  of  Chicago,  providing  them  witli  the 
only  then  existing  means  of  settling  financial  transactions  with  other 
sections  of  the  country. 

Elsewhere  in  this  volume  there  has  been  given  a  full  account  of 


590  FINANCING  AN  EMPIRE 

the  activities  of  George  Smith,  who  was  the  first  banker  to  give  a 
stable  and  reliable  currency  to  the  country  in  and  about  Illinois.  In 
this  valuable  undertaking  George  Smith  had  closely  associated  with 
him  a  man  from  his  own  section  of  Scotland  named  Alexander  Mit- 
chell. Mitchell  Mas  born  on  a  farm  near  Aberdeen  in  1817-  His 
only  education  had  been  obtained  at  one  of  the  common  schools  of 
his  native  parish,  but  that  included  a  thorough  knowledge  of  all  the 
usual  branches  as  well  as  higher  mathematics.  For  a  time  he  worked 
in  an  advocate's  office  in  Aberdeen  and  then  in  a  bank  in  Peterhead. 
In  1839,  while  he  was  with  the  bank,  George  Smith  persuaded  him 
to  come  to  America  to  handle  the  Milwaukee  end  of  the  Wisconsin 
Marine  and  Fire  Insurance  Company  through  the  branch  office  of 
which  Smith  operated  in  Chicago.  Alexander  Mitchell  amply  proved 
the  soundness  of  George  Smith's  judgment  of  men.  His  great  nat- 
ural ability  and  far-seeing  shrewdness  were  a  great  acquisition  to  the 
growing  middle  west.  He  was  thoroughly  public-spirited,  but  in  no 
sense  was  he  a  politician,  although  he  did  serve  two  terms  in  Congress 
where  he  distinguished  himself  by  the  stand  he  took  for  sound  finan- 
cial measures. 

After  the  introduction  of  national  banks  removed  all  need  for 
"Smith's"  or  "Mitchell's"  notes,  as  they  were  variously  known. 
George  Smith  sold  out  his  interests  in  Chicago  and  the  surrounding 
territory  and  returned  to  Scotland.  Alexander  Mitchell,  on  the  other 
hand,  continued  to  develop  the  Wisconsin  Marine  and  Fire  Insurance 
Company,  first  making  it  conform  with  the  laws  of  the  State  of  Wis- 
consin and  later  incorporating  it  as  a  national  bank  until,  even  to  the 
present  time,  long  )rears  after  his  death,  the  institution  continues  to 
hold  a  prominent  position  in  its  community  and  maintains  the  repu- 
tation for  stability  and  conservatism  which  Mitchell  and  Smith  in- 
culcated in  it  during  pioneer  days. 

In  line  with  his  talent  for  business  together  with  his  enthusiasm 
for  community  development,  Alexander  Mitchell  developed  many 
enterprises  in  addition  to  his  bank.  At  the  time  of  his  death,  April 
19,  1886,  he  was  president  of  the  Chicago.  Milwaukee  and  St.  Paul 
Railway  and  of  the  Northwestern  National  Insurance  Company. 
In  fact  it  was  he  who  organized  the  Chicago,  Milwaukee  and  St.  Paul 
Railway  Company.  Prior  to  the  panic  of  1857  there  had  existed  in 
the  territory  tributary  to  Wisconsin  and  Illinois  a  large  number  of 
small  railroads.  Many  of  these  fell  into  difficulties  during  the  panic 
and  Mitchell  in  his  capacity  as  banker  was  of  great  assistance  in  pre- 


HISTORY  OF  BANKING   IX  ILLINOIS  591 

serving  them.  Following  the  panic  he  consolidated  a  number  of  these 
small  roads  into  the  system  which  shortly  became  one  of  the  most 
prominent  in  the  country  and  which,  even  at  the  time  of  his  death 
had  more  miles  of  track  than  any  other  railroad  in  the  world.  Simi- 
larly the  insurance  company  rapidly  developed  to  national  propor- 
tions. 

Banking  on  a  notable  scale  has  developed  so  recently  in  this  sec- 
tion of  the  country  that  many  of  its  pioneers  either  still  live  or  are 
well  remembered  by  men  who  are  comparatively  voung.  Among 
those  whom  many  recall,  is  William  F.  Coolbaugh,  President  of  the 
Union  National  Hank  of  Chicago,  and  a  man  whom,  it  is  said,  everv- 
body  liked. 

Mr.  Coolbaugh  was  born  in  Pennsylvania  in  1821  and  attended 
school  in  that  state  until  he  readied  the  age  of  twelve.  He  then  went 
to  work  as  a  porter  in  a  dry  goods  establishment  in  Philadelphia  and 
in  time  became  manager  of  the  firm's  business  in  the  western  and 
southwestern  country.  In  1842,  determined  to  go  into  business  for 
himself,  he  settled  in  Burlington,  Iowa,  where  he  conducted  a  mer- 
cantile business  for  eight  years.  In  18.50  he  started  the  banking  house 
of  Coolbaugh  and  Brooks  and  was  thereafter  appointed  Loan  Agent 
for  the  State  of  Iowa  in  which  capacity  he  negotiated  the  first  loan 
Iowa  ever  made  and  issued  the  first  bonds  of  that  state. 

In  1862  Mr.  Coolbaugh  moved  to  Chicago  where  he  established 
the  banking  house  of  W.  F.  Coolbaugh  and  Companv  which,  in  188.5, 
was  merged  with  the  Union  National  Bank  with  a  capital  of  five 
hundred  thousand  dollars.  He  established  his  home  at  Twenty-third 
Street  and  Calumet  Avenue  and  there  raised  a  large  and  harmonious 
family.  It  was  a  very  usual  sight  to  find  Mr.  Coolbaugh  driving 
Ins  family  about  the  city,  for  his  children  received  the  same  intense 
and  careful  attention  he  gave  his  business. 

When  General  Philip  Sheridan  moved  his  department  of  the 
Army  from  headquarters  in  St.  Louis  to  Chicago,  a  number  of  Chi- 
cago's most  prominent  business  men  got  together  and  presented  him 
with  a  beautifully  furnished  home  at  Michigan  Avenue  and  Eigh- 
teenth Street.  Mr.  Coolbaugh,  who  was  a  close  friend  of  the  General, 
was  prominent  in  this  and,  because  of  the  close  companionship  exist- 
ing between  the  two  men,  General  Sheridan  rented  an  office  in  the 
Union  Bank  Building  on  the  corner  of  La  Salle  and  Washington 
streets.  Thereafter  it  was  said  that  the  General's  whereabouts  was 
always  certain  under  given  circumstances.     Every  day  at  the  same 


592  FINANCING  AN  EMPIEE 

hour  he  might  be  seen  driving  down  to  his  office  in  an  army  ambulance 
drawn  by  four  mules  and  driven  by  two  uniformed  soldiers.  After 
banking  hours,  each  day,  he  might  just  as  certainly  be  found  in  the 
office  of  Mr.  Coolbaugh  where  the  two  good  friends  would  while  away 
the  remainder  of  the  afternoon.  The  General's  fondness  for  the 
banker,  it  was  frequently  said,  was  only  indicative  of  the  feeling  held 
generally  for  these  two  great  men. 

For  years  Mr.  Coolbaugh's  bank — the  Union  National — held 
undisputed  claim  to  first  place  among  banks  of  Chicago.  Eventually, 
however,  the  First  National  Bank,  under  the  presidency  of  Lyman 
J.  Gage,  so  increased  its  deposits  as  to  outstrip  the  Union  National 
which  fact  so  deeply  humiliated  Mr.  Coolbaugh  that,  in  spite  of  an 
exceedingly  happy  family  life  and  countless  friends,  he  felt  so  un- 
bearably humiliated  by  the  loss  of  prestige  of  his  institution  as  to  take 
his  own  life. 

A  story  is  told  of  Mr.  Coolbaugh  during  the  panic  of  1873  when 
the  Union  National  Bank  was  still  the  largest  in  Chicago.  It  seems 
that  the  County  Treasurer  then  carried  a  large  balance  in  Mr.  Cool- 
baugh's bank  which,  in  the  midst  of  the  panic,  he  threatened  to  with- 
draw. Mr.  Coolbaugh  first  tried  to  dissuade  him,  but  as  the  Treas- 
urer remained  obstinate  and  it  seemed  certain  that  he  was  prepared 
to  withdraw  almost  one  and  one-half  million  dollars,  Mr.  Coolbaugh 
said:  "If  you  attempt  to  withdraw  that  much  money  from  my  bank. 
I'll  close  the  bank.  Money  is  too  tight  to  permit  so  large  a  with- 
drawal at  one  time."  Still  the  Treasurer  was  not  to  be  turned  aside, 
so  the  banker  made  good  his  threat. 

This  occurred  in  September,  1873,  on  the  very  day  on  which  the 
old  Exposition  Building,  occupying  the  site  to  the  north  of  the  Art 
Institute  of  Chicago,  was  dedicated.  Mr.  Coolbaugh  was  president 
of  the  dedication  ceremonies  which  were  extremely  elaborate  and  the 
whole  city  marveled  at  the  calm  manner  in  which  he  conducted  the 
opening  of  the  Exposition  Building  when,  but  a  few  hours  before 
he  had  found  it  necessary  to  close  the  doors  of  his  bank. 

Contemporary  with  William  F.  Coolbaugh,  but  lacking  his  talent 
for  making  friends,  was  Solomon  A.  Smith.  He  was  born  at  South- 
ward, Massachusetts,  in  181.)  where,  after  finishing  a  common  school 
education,  he  joined  his  father  in  the  manufacture  of  powder.  On  his 
trips  made  to  sell  the  explosive,  Mr.  Smith  became  convinced  of  the 
opportunities  in  the  growing  west  and  therefore  decided  to  settle  in 
Chicago.    He  soon  acquired  an  interest  in  what  later  became  one  of 


ORSON  SMITH 


MARSHALL  FIELD 


NORMAN  B.  REAM 


PHILIP  D.  ARMOUR 


HISTORY  OF  BANKING  IN  ILLINOIS  595 

the  largest  powder  manufacturing  concerns  in  the  country  and  as 
a  result  of  this  business  moved  to  Chicago  in  1840.  Twenty  years 
later,  when  an  effort  was  being  made  to  extract  the  country  from  its 
many  banking  difficulties,  "Sol"  Smith,  as  he  was  then  called,  became 
one  of  the  original  incorporators  of  the  Merchant's  Loan  and  Trust 
Company  and  was  called  upon  to  act  as  president  of  the  institution. 
In  addition  to  banking  troubles  which  were  being  experienced  in  Illi- 
nois at  the  time,  further  difficulties  were  being  encountered  because 
of  the  economic  effect  of  the  election  of  President  Lincoln.  Bank 
suspensions  were  occurring  daily  and  money  values  changed  even 
more  often.  Nevertheless,  Mr.  Smith  managed  to  infuse  life  into  his 
bank  under  these  trying  conditions,  carried  it  safely  through  the 
years  of  trial  that  came  with  the  Civil  war  and  is  deserving  of  much 
credit  for  the  proportions  to  which  its  business  ultimately  extended. 

Orson  Smith  is  another  well  remembered  figure.  His  modesty 
prevented  a  general  appreciation  of  his  great  importance  to  financial 
Chicago.  He  accomr^lished  little  that  was  spectacular  and  the  art  of 
publicity  has  preserved  but  few  records  of  his  accomplishments.  Mr. 
Smith,  born  in  1841,  began  his  business  life  at  the  age  of  thirteen  as  a 
"bundle  boy"  in  Potter  Palmer's  retail  dry  goods  store.  At  fourteen 
he  began  his  banking  career  by  entering  the  banking  house  of  F. 
Granger  Adams,  later  to  become  the  Trader's  Bank,  as  a  clerk.  In 
1870  he  became  Cashier  of  the  Corn  Exchange  National  Bank,  which 
position  he  retained  until  1881  when  he  joined  the  Merchant's  Loan 
and  Trust  Company  of  which  institution  he  became  the  president  in 
1898.  Inconspicuous  as  were  his  dealings,  Orson  Smith  is  to  be 
classed  among  the  greatest  bankers  Chicago  has  produced.  It  was 
his  belief  that  to  be  a  good  banker  one  must  adhere  close  to  the  bank- 
ing business  and  on  that  account  he  never  permitted  himself  to  be 
affiliated  with  any  other  business  enterprise.  He  was,  however,  gen- 
erous with  time,  money  and  energy  when  it  came  to  civic  development. 
The  work  of  the  Chicago  Historical  Society  particularly  interested 
him  and,  proud  of  his  long  residence  in  the  city,  he  became  an  author- 
ity on  historic  Chicago.  Charitable  and  other  institutions  also  re- 
ceived his  attention,  but  in  business  he  never  turned  aside  from  the 
affairs  of  his  bank. 

The  First  National  Bank  of  Chicago,  which  is  one  of  the  oldest 
and  has  for  many  years  been  among  the  largest  in  the  city,  has  pro- 
duced a  number  of  men  who  have  contributed  generously  to  the 
financial    history  of   the   country.      Among   the   first   of   these   was 


596  FINANCING  AN  EMPIRE 

Samuel  M.  Nickerson,  who  for  many  years  served  as  the  bank's 
president,  and  who  was  known  as  one  of  the  most  capable  bankers  of 
the  middle  west. 

Samuel  M.  Nickerson  was  born  in  Massachusetts  in  1830.  At 
seventeen  he  became  convinced  that  the  south  offered  unusual  ad- 
vantages, so  went  to  Florida  where  for  three  years  he  worked  in  a 
general  store  owned  by  his  brother.  Then  he  believed  himself  cap- 
able of  going  into  business  for  himself,  borrowed  the  necessary 
capital  and  set  up  a  store  of  his  own.  This  venture  struggled  on  for 
some  years  and  then  was  destroyed  by  fire  at  a  time  when  there  was 
some  outstanding  indebtedness.  Such  claims  as  were  held  against 
Mr.  Nickerson  were  immediately  compromised  and  he  was  technically 
freed  from  all  further  obligations.  However,  he  was  not  to  be  satis- 
fied with  such  an  incomplete  settlement,  but  went  to  work  and  within 
a  few  years  had  become  sufficiently  prosperous  to  be  able  to  pay 
each  of  his  former  creditors  all  that  still  remained  due  them. 

In  1858  Mr.  Nickerson  came  to  Chicago,  borrowing  the  neces- 
sary funds  for  the  trip,  and  set  about  distilling  high  wines  and  alcohol. 
This  venture  proved  to  be  so  remunerative  that  shortly  he  was  able 
to  turn  his  attention  to  other  businesses  as  well  and  in  1862  became 
an  ardent  promoter  of  the  proposed  First  National  Bank.  Not  only 
did  he  subscribe  liberally  to  the  stock  of  the  new  institution,  but  gave 
his  able  assistance  to  its  organization.  He  was  elected  to  the  first 
board  of  directors,  chosen  a  vice-president,  and  in  1867,  upon  the 
death  of  President  Aiken,  was  chosen  to  fill  the  vacant  post.  For 
the  next  twenty-four  years  he  served  in  this  position,  resigning  in 
1891  and  called  back  again  in  1897.  In  1900  he  again  resigned  and 
went  to  New  York  to  live. 

In  addition  to  the  distilling  business,  Mr.  Nickerson  engaged  in 
many  others.  He  was  at  one  time  president  of  the  Chicago  City 
Horse  Railroad  Company,  and  was  actively  engaged  in  a  number  of 
other  commercial,  railway  and  financial  enterprises.  In  1867  he  was 
the  chief  force  in  the  organization  of  the  Union  Stock  Yards  Na- 
tional Bank,  since  known  as  the  National  Live  Stock  Bank,  and  for 
six  years  served  as  its  president  as  well  as  holding  a  similar  position 
with  the  First  National  Bank. 

For  recreation  outside  of  business  circles,  Mr.  Nickerson  and  his 
wife  took  an  active  interest  in  art.  They  made  an  exceedingly  fine 
collection  of  paintings  representing  the  best  masters,  which,  upon 
their  departure  from  the  city  was  donated  to  the  Art  Institute  along 


HISTORY  OF  BANKING  IN  ILLINOIS  597 

with  an  excellent  collection  of  paintings,  engravings,  Chinese  and 
Japanese  porcelain,  jades  and  lacquers,  ivory  carvings,  arms  and 
many  other  artistic  objects.  Much  of  Mr.  Nickerson's  personality 
also  was  devoted  to  the  Art  Institute  of  which  he  was  a  director  for 
many  years. 

After  leaving  Chicago  Samuel  M.  Nickerson  continued  to  serve 
on  the  Board  of  Directors  of  the  First  National  Bank  until  190,5  when 
he  severed  this  tie  that  had  for  so  long  bound  him  to  the  city.  There- 
after he  continued  to  live  in  the  east  until  the  time  of  his  deah,  July 
20,  1914. 

Lyman  J.  Gage,  who  followed  Samuel  M.  Nickerson  as  president 
of  the  First  National  Bank  of  Chicago,  was  likewise  a  very  capable 
and  prominent  banker.  lie  was  born  in  New  York  in  1836  and  at 
the  age  of  fourteen  obtained  a  position  as  clerk  in  the  post  office  in 
Rome,  New  Y'ork.  In  this  position  he  remained  for  three  years  and 
then  at  the  age  of  seventeen  began  his  long  banking  career  by  enter- 
ing upon  a  clerkship  in  the  Oneida  Central  Bank  of  the  same  city. 
His  first  position  paid  him  one  hundred  dollars  a  year,  but  in  his 
subsequent  career  he  quickly  proved  himself  worthy  of  a  far  more 
attractive  remuneration.  At  nineteen  Mr.  Gage  decided  to  join 
those  seeking  their  fortunes  in  the  west  and  arrived  in  Chicago  in 
1855  with  so  little  money  that  he  was  compelled  to  take  whatever 
work  presented  itself.  For  a  time  he  worked  in  a  lumber  yard  at 
Adams  and  Canal  streets,  but  in  the  panic  of  1858  he  lost  this  posi- 
tion and  spent  a  time  serving  as  a  night  watchman.  Next  he  secured 
a  position  as  bookkeeper  for  the  Merchants'  Loan  and  Trust  Com- 
pany at  a  salary  of  five  hundred  dollars  a  year.  One  year  later,  in 
1859,  he  was  promoted  to  the  place  of  paying  teller  at  twelve  hun- 
dred dollars;  in  1860  he  was  made  assistant  cashier;  and  in  1861  he 
was  made  cashier,  which  position  he  held  until  1868,  during  which 
year  he  was  offered  the  position  of  cashier  in  the  First  National 
Bank. 

At  the  First  National  Bank  Mr.  Gage  remained  for  the  next 
twenty-nine  years,  advancing  from  cashier  to  vice-president,  and  then 
to  position  of  president,  which  he  later  resigned  to  accept  the  post  of 
Secretary  of  the  United  States  Treasury.  For  five  years  thereafter 
he  managed  the  financial  affairs  of  the  government  with  success  and 
distinction. 

Another  place  in  which  Lyman  J.  Gage  distinguished  himself 
was  in  connection  with  the  staging  of  the  World's  Columbian  Expo- 


598  FINANCING  AN  EMPIRE 

sition  in  Chicago  in  1892  and  1893.  It  was  he  who  helped  organize 
various  committees  and  who  did  as  much  as  any  one  man  could  to 
make  certain  the  raising  of  ten  million  dollars  pledged  to  secure  the 
Fair  for  Chicago.  He  was  unanimously  elected  first  president  of  the 
board  of  directors  for  the  Exposition  and  when  he  later  resigned  that 
position,  he  continued  to  play  an  important  part  in  making  the  under- 
taking a  success. 

Mr.  Gage  was  prominent  in  social  and  art  circles  in  Chicago.  For 
many  years  he  was  treasurer  of  the  Art  Institute,  president  of  the 
Commercial  Club  and  a  member  of  the  Chicago  Club. 

It  is  said  that  Mr.  Gage  was  as  shrewd  in  the  matter  of  handling 
human  nature  as  in  that  of  producing  business  for  his  bank.  This 
was  brought  out  during  the  panic  of  1893  when  things  in  general  were 
looking  pretty  dark  and  the  First  National  Bank  had  found  it  neces- 
sary to  charge  off  a  million  dollars  on  each  of  two  large  accounts. 
When  these  two  failures  occurred  there  were  people  who  suspected 
that  the  First  National  Bank  might  have  stood  heavy  losses  and, 
although  efforts  were  made  to  quiet  any  such  rumors,  the  news  spread 
with  such  rapidity  that  the  bank  was  besieged  by  reporters  seeking 
the  story  and  depositors  desiring  to  make  withdrawals.  Realizing 
that  something  must  be  done  to  save  the  bank  from  a  run,  Mr.  Gage 
determined  upon  the  course  of  showing  no  hesitancy  in  telling  exactly 
what  had  happened.  This  proved  to  be  extremely  wise  and,  prob- 
ably, the  only  plan  that  could  have  saved  the  bank  in  the  emergency. 
Once  people  perceived  that  the  bank's  president  was  willing  to  admit 
a  loss,  it  was  natural  to  assume  that  the  loss  was  not  of  as  great  con- 
sequence as  had  at  first  seemed  and  the  matter  soon  was  forgotten. 

For  some  years  after  resigning  his  position  as  Secretary  of  the 
Treasury,  Mr.  Gage  continued  his  banking  career  in  New  York  City. 
Later  he  retired  to  California. 

Lyman  J.  Gage's  successor  to  the  presidency  of  the  First  National 
Bank  was  similarly  prominent  in  banking  affairs  of  the  community. 
So  closely  has  the  work  of  James  B.  Forgan  been  linked  up  with  the 
development  of  financial  history  that  frequent  mention  has  been  made 
of  him  in  other  sections  of  this  volume.  He  was  born  in  St.  Andrews, 
Scotland,  in  1852,  and  entered  upon  his  banking  career  at  the  age  of 
seventeen  when  he  secured  a  position  with  the  St.  Andrews'  branch 
of  the  Royal  Bank  of  Scotland.  Three  years  later  he  secured  a  posi- 
tion with  the  Bank  of  British  North  America  in  London,  which  in- 
stitution sent  him  to  Montreal,  Canada.    Thereafter  he  was  employed 


HISTORY  OF  BANKING  IN  ILLINOIS  599 

by  a  number  of  prominent  banking  institutions,  both  in  the  United 
States  and  Canada,  always  advancing  his  position,  until  in  1892  he 
had  made  so  excellent  a  reputation  for  himself  that  Mr.  Gage  secured 
a  vice-presidency  for  him  at  the  First  Xational  Bank  of  Chicago.  In 
1897  when  Mr.  Gage  resigned  from  the  bank  in  order  to  take  up  his 
duties  as  Secretary  of  the  Treasury,  it  was  planned  that  Mr.  Forgan 
should  head  the  bank.  Mr.  Forgan,  however,  was  then  in  poor  health 
and  therefore  unable  to  undertake  the  responsibility,  on  which  account 
ex-president  Samuel  M.  Xickerson  returned  and  acted  as  president 
of  the  bank  for  the  next  three  years.  In  1900  when  Mr.  Xickerson 
retired,  Mr.  Gage  was  able  to  assume  the  presidency,  which  position 
he  held  until  1916  when  he  was  made  chairman  of  the  board  of  direc- 
tors. In  this  capacity  he  remained  with  the  First  Xational  Bank 
until  the  time  of  his  death  late  in  1924.  Meantime,  he  had  for 
twenty-one  years  been  chairman  of  the  Clearing  House  Committee 
of  Chicago  and  served  for  some  time  as  a  member  of  the  board  of 
directors  of  the  Federal  Reserve  Bank  of  Chicago. 

Because  of  a  certain  gruffness  of  manner  which  he  carried,  Mr. 
Forgan,  unlike  Mr.  Gage,  was  not  always  appreciated  to  the  full 
extent  of  his  merits.  However,  many  a  man  who  believed  he  had 
reason  to  dislike  Mr.  Forgan,  later  came  to  understand  that  the 
banker  was  a  very  just  man  and  one  who  should,  after  all,  be  regarded 
as  a  friend.  The  story  is  told  of  one  of  the  employees  of  the  bank  to 
whom  Mr.  Forgan,  in  a  fit  of  anger,  made  some  extremely  unkind 
remarks.  Although  the  employee  held  only  an  inferior  position,  he 
so  greatly  resented  what  the  president  had  said  as  to  reply,  "Mr.  For- 
gan, there  is  no  man  whom  I  permit  to  talk  to  me  as  you  have  just 
done."  Surprise  over  the  courage  of  the  young  man  led  the  banker 
not  only  to  calm  down,  but  to  see  the  justice  of  his  remark  and  shortly 
thereafter,  that  man  who  had  had  the  courage  to  talk  back  was  put  in 
line  for  an  officer's  position. 

The  one  man  who  is  outstanding  in  the  affairs  of  the  Northern 
Trust  Company  is  Byron  L.  Smith,  who  was  a  prominent  factor  in 
the  organization  of  that  institution  and  who  acted  as  its  president  for 
many  years.  Prior  to  joining  the  Xorthern  Trust  Company,  Mr. 
Smith  was  a  vice-president  of  the  Merchants  Loan  &  Trust  Com- 
pany. Throughout  his  career  he  was  also  prominent  in  a  great  many 
important  undertakings  other  than  banking.  He  was  a  vice-president 
of  the  Chicago  Telephone  Company  and  a  director  in  several  of  the 
more  prominent  railroad  lines,  among  which  were  included  the  Chi- 


600  FINANCING  AN  EMPIRE 

cago  and  Northwestern  and  the  Chicago,  Milwaukee  and  St.  Paul.  At 

tlic  same  time  he  was  likewise  deeply  interested  in  the  affairs  of  the 
larger  local  transportation  companies  in  the  city  of  Chicago,  and  was 
known  for  his  activities  in  connection  with  the  Chicago  Board  of 
Trade,  the  Chicago  Stock  Exchange  and  the  more  widely  known  clubs 
of  the  city. 

Chicago's  oldest  bank  president  in  point  of  service  is  John  J. 
Mitchell,  who.  at  the  age  of  twenty-six,  advanced  to  the  head  of  the 
Illinois  Trust  and  Savings  Bank,  in  which  position  he  continued  until 
1023,  when  the  bank  was  merged  with  two  others  to  form  the  Illinois 
Merchants  Trust  Company,  one  of  the  largest  State  banking  insti- 
tutions in  the  country.  Although  Mr.  Mitchell,  who  had  then  been 
president  of  the  bank  for  forty-three  years  and  was  almost  seventy 
years  old,  desired  to  retire  at  the  time  of  the  merger — and  who,  on  that 
account,  had  been  elected  chairman  of  the  board  of  directors — the 
death  of  Edmund  D.  Ilnlbert  of  the  Merchants  Loan  and  Trust  Com- 
pany, the  man  selected  to  head  the  merged  banks,  left  no  course  open 
for  John  J.  Mitchell  but  to  resume  the  presidency. 

Mr.  Mitchell  has  become  nationally  known  and  appreciated.  In 
addition  to  his  interests  in  Chicago's  largest  state  bank,  he  is  also  a 
member  of  the  board  of  directors  of  a  number  of  banking  and  com- 
mercial organizations  in  various  parts  of  the  country.  Among  these 
are  included  the  Chase  National  Bank  of  Xew  York,  the  Pullman 
Company,  International  Harvester  Company,  Illinois  Bell  Telephone 
Company,  Commonwealth  Edison  Company,  Peoples  Gas  Light  and 
Coke  Company,  the  Mutual  Life  Insurance  Company  of  Xew  York, 
and  the  Art  Institute  of  Chicago. 

Another  man  who  impressed  his  personality  on  banking  in  Chi- 
cago and  who  had  much  to  do  with  the  largest  savings  bank  west  of 
New  York,  was  William  II.  Mitchell,  father  of  John  J.  Mitchell. 
William  II.  Mitchell,  after  turning  over  the  helm  of  the  Illinois  Trust 
and  Savings  Bank  to  the  guidance  of  his  son.  continued  to  be  actively 
interested  in  the  institution's  development  and  progress.  He  served 
until  the  time  of  his  death  as  chairman  of  the  bank's  finance  com- 
mittee. 

Although  much  of  Chicago's  financial  strength  has  been  due  to 
the  wise  guidance  of  her  most  capable  bankers,  these  men  alone  arc 
not  deserving  of  credit  for  the  place  Chicago  has  now  assumed  in  the 
financial  affairs  of  the  nation.  In  the  earlier  days  when  Chicago  and 
St.  Lonii  were  intense  rivals,  with  St.  Louis  Inning  somewhat  the 


SAMUEL  M.  NICKEKSON 


SAMUEL  W.  ALLERTON 


CYRUS  II.  MiCORMICK 


HISTORY  OP  BANKING  IN  ILLINOIS  603 

advantage,  it  was  certain  of  the  merchants,  rather  than  bankers  of 
Chicago  which  made  it  possible  for  the  city  on  the  lake  to  push  for- 
ward to  first  place.  St.  Louis  had  secured  its  position  partly  because 
it  was  the  older  city  of  the  two,  and  partly  because  the  Mississippi 
river  afforded  as  adequate  a  highway  as  the  great  lakes  could.  The 
first  man  to  take  steps  to  change  this  was  Levi  Z.  Leiter,  who,  together 
with  Marshall  Field,  conducted  the  city's  most  prominent  dry-goods 
establishment.  It  was  then  customary  for  merchants  in  St.  Louis 
to  do  business  on  high  interest  rates  and  with  infrequent  turn-over. 
Mr.  Leiter  conceived  the  idea  that  more  and  better  business  could  be 
produced  by  offering  lower  rates  and  discounting  bills  for  quick  pay- 
ment and  encouraging  younger  men  to  build  up  their  businesses.  As 
a  result,  he  soon  got  money  to  turning  every  thirty,  sixty  or  ninety 
days,  while  the  old  conservative  element  that  would  not  follow  his 
suggestion  was  forced  to  an  extent  to  carry  its  business  to  St.  Louis. 
The  energetic  and  progressive  younger  men  soon  established  them- 
selves in  Chicago  and  in  time  developed  the  city  to  the  point  where  it 
became  not  only  larger  than  St.  Louis,  but  the  most  prominent  city 
in  the  middle  west. 

Marshall  Field,  who  for  years  was  Levi  Z.  Leiter's  partner  in 
business,  was  in  large  part  responsible  for  establishing  the  credit  of 
Chicago.  He  was  undoubtedly  a  super-business  man.  It  is  said  that 
at  times  his  credit  was  as  great  as  that  of  the  United  States  itself. 
Although  Mr.  Field  did  not  engage  directly  in  the  banking  business, 
his  ability  and  credit  were  such  that  whenever  a  great  catastrophe 
befell  the  banking  world,  its  leaders  immediately  called  in  Marshall 
Field  for  advice,  and,  as  a  rule,  his  suggestions  were  carried  out  im- 
plicitly. 

Marshall  Field's  genius  was  due  in  large  part  to  the  fact  that  he 
was  able  to  get  the  best  out  of  men  and  kept  his  employees  and  busi- 
ness associates  among  his  best  friends.  Many  a  man  preferred  to 
work  for  Marshall  Field  on  a  small  salary  than  for  anyone  else  at 
a  higher  price.  It  was  a  well-known  fact  that  Mr.  Field  never  made 
the  mistake  of  giving  worth-while  positions  in  his  organizations  to 
men  from  the  outside.  So  far  as  possible  his  own  faithful  employees 
were  promoted  to  the  fullest  extent  of  their  own  ability.  Also  he 
gave  his  own  people  an  interest  in  the  profits  of  his  business,  but  never 
let  the  actual  ownership  outside  his  own  control.  It  was  a  rule  that 
as  soon  as  a  man  had  accumulated  a  fair  sized  fortune  he  was  released 
from  the  Field  organization,  for  Marshall  Field  contended  that  any 


604  FINANCING  AN  EMPIRE 

man  who  had  a  fortune  of  his  own  was  unable  to  give  his  best  interests 
to  the  affairs  of  Marshall  Field. 

Samuel  W.  Allerton  and  Norman  B.  Ream  were  prominent  pio- 
neers in  the  live  stock  business  which  was  shortly  to  become  an  impor- 
tant contribution  to  the  growth  of  the  wealth  of  Chicago  and  the  sur- 
rounding territory.  Mr.  Ream,  in  partnership  with  a  man  named 
Coffman,  entered  the  live  stock  commission  business  in  Chicago  about 
1 870  and  in  time  became  connected  with  a  number  of  other  houses  and 
amassed  a  sufficient  fortune  to  become  one  of  the  largest  operators 
on  the  Chicago  Board  of  Trade.  Samuel  W.  Allerton  had  from  his 
early  youth  an  ambition  to  become  a  stock  dealer.  At  eighteen  he 
began  stock  raising  on  his  own  account  and  at  twenty-one  had  accumu- 
lated enough  capital  to  purchase  a  stock  farm  in  Piatt  County,  Illi- 
nois. Year  by  year  he  increased  the  amount  of  stock  he  raised  and 
found  a  growing  market  for  his  product  in  the  city  of  Chicago.  He 
soon  perceived  the  necessity  of  establishing  suitable  facilities  in  the 
city  for  handling  his  shipments,  so  opened  an  agency  to  which  he  con- 
signed his  live  products.  Next  he  started  a  packing  house  which 
eventually  demanded  more  live  stock  than  his  farm  in  Illinois  could 
produce,  so  he  made  connections  with  sources  of  supply  throughout  the 
west  until  he  owned  over  forty  thousand  acres  of  land  in  Ohio,  Illi- 
nois and  Iowa  and  had  established  additional  packing  plants  at  St. 
Louis,  Omaha,  Kansas  City,  Pittsburgh,  Baltimore,  Philadelphia  and 
Jersey  City.  It  was  largely  through  his  personal  energy  that  the 
Stock  Yards  of  Chicago  have  been  built  up  and,  since  when  he  began 
business  scarcely  a  single  establishment  of  the  kind  existed,  stock 
yards  throughout  the  country  are  largely  a  result  of  his  initial  efforts. 

While  he  was  occupied  with  the  promotion  of  the  cattle  business, 
Mr.  Allerton  also  developed  as  an  influential  leader  in  the  world  of 
finance.  As  his  earnings  from  the  cattle  business  increased,  it  became 
necessary  for  him  to  find  some  other  source  of  permanent  investment 
and  this  led  him  to  take  an  interest  in  banking.  Much  of  his  attention 
was  given  to  the  First  National  Bank  of  Chicago  in  the  foundation 
of  which  he  played  some  part.  Likewise,  he  purchased  stock  and 
became  a  director  in  a  number  of  manufacturing  and  commercial  en- 
terprises in  and  about  Chicago. 

Once  the  Stock  Yards  got  under  way,  Chicago  became  interna- 
tionally famous  for  the  contributions  made  to  this  industry  by  under- 
takings begun  by  Edward  F.  Swift,  Edward  Morris  and  Philip  D. 
Armour.    As  their  fortunes  grew  these  men  took  an  active  interest  in 


HISTORY  OF  BANKING  IN  ILLINOIS  605 

banking  and  in  time  each  contributed  so  much  to  certain  groups  of 
hanks  as  to  have  these  financial  institutions  popularly  known  as 
theirs.  The  Swift  interests  were  thus  prominent  in  the  development 
of  the  Illinois  Merchants  Trust  Company,  the  Fort  Dearborn  Banks, 
the  Lake  Shore  Trust  and  Savings  Bank  and  the  Live  Stock  Ex- 
change Bank.  The  Morris  interests  to  a  large  extent  financed  certain 
south  side  institutions,  among  which  were  the  Stock  Yards  Savings 
Ba*nk,  the  Liberty  Trust  and  Savings  Bank  and  the  Fidelity  Sav- 
ings Bank,  located  on  the  north  side. 

It  is  probable  that  throughout  time  the  memory  of  Philip  D. 
Armour  in  the  city  of  Chicago  will  stand  as  much  for  the  city's  largest 
banking  institution  as  for  the  enormous  packing  plants  which  his 
genius  developed.  It  is  probable,  too,  that  Mr.  Armour's  affections 
were  almost  as  closely  tied  to  the  affairs  of  the  Continental  and  Com- 
mercial Banks  as  to  those  of  Armour  and  Company.  His  dream  of 
erecting  the  largest  and  finest  bank  building  in  the  west,  and  one 
which  should  at  the  same  time  house  the  executive  offices  of  his  great 
packing  companies,  was  eventually  realized  in  the  Continental  and 
Commercial  Bank  Building,  an  edifice  which  adds  much  to  the  general 
attractions  of  La  Salle  Street,  a  thoroughfare  acknowledged  to  be 
one  of  the  most  beautiful  financial  streets  in  the  world.  Unfortu- 
nately, however,  this  great  building  was  not  realized  until  after  Mr. 
Armour's  death,  which  occurred  in  1901. 

The  Merchants  Loan  and  Trust  Company  of  Chicago  was  closely 
allied  with  the  interests  and  names  of  Marshall  Field,  Cyrus  Hall 
McCormick  and  George  M.  Pullman.  McCormick  was  a  Virginian 
who,  before  he  became  of  age,  had  invented  improvements  in  three 
different  agricultural  implements.  By  twenty-five  he  had  made  his 
first  reaper,  the  first  successful  machine  of  its  type  that  had  up  to 
that  time  been  produced.  In  1847  he  came  to  Chicago  where  he 
entered  upon  the  manufacture  of  his  machines,  building  only  seven 
hundred  in  1848  and  soon  supplying  the  world.  In  18.51  he  displayed 
his  reaper  at  the  World's  Fair  in  London,  where  it  was  pronounced 
to  be  worth  the  whole  show.  It  was  claimed  that  this  single  machine 
brought  an  annual  income  of  more  than  fifty-five  million  dollars  to 
the  United  States  and  that  it  moved  the  line  of  civilization  westward 
thirty  miles  each  year.  France  officially  told  Mr.  McCormick  that  he 
had  done  more  for  the  cause  of  agriculture  than  any  other  living  man. 
He  was  one  of  the  organizers  of  the  Merchants  Loan  and  Trust  Com- 


606  FINANCING  AX  EMPIRE 

pany,  and  continued  to  be  a  stockholder  in  the  institution  up  to  the 
time  of  his  death  in  1884. 

George  M.  Pullman,  who  for  more  than  fifteen  years  prior  to  his 
death  in  1897  served  as  a  director  of  the  same  institution,  was  the 
founder  of  the  Pullman  Palace  Car  Company,  which  was  the  first 
concern  in  the  world  to  engage  in  the  building  of  sleeping,  hotel  and 
palace  cars.  As  a  consequence,  his  name  has  become  associated  with 
luxurious  travel  the  world  over.  As  Mr.  Pullman  was  an  idealist  as 
well  as  practical  producer,  he  built  the  town  of  Pullman  for  his  man- 
ufacturing plants  in  order  that  his  workmen  might  be  provided  with 
model  working  and  living  conditions. 

One  person  who  became  nationally  known  for  his  contributions 
to  the  development  of  the  financial  stability  of  the  community  and  of 
the  country  as  a  whole,  was  engaged  in  neither  banking  nor  any  form 
of  commerce.  He  was  Professor  James  Laurence  Laughlin  of  the 
University  of  Chicago.  Dr.  Laughlin  came  into  great  prominence 
in  the  city  of  his  adoption  during  the  free  silver  campaign  when  his 
advice  was  sought  and  he  was  made  a  member  of  the  Indianapolis 
Monetary  Commission.  Prior  to  that  time  he  had  prepared  a  scheme 
of  monetary  reform  for  the  government  of  San  Domingo  which  was 
adopted.  Subsequently  he  was  made  a  member  of  the  National  Mon- 
etary Commission  which  made  a  world-wide  investigation  of  financial 
plans  preparatory  to  that  reform  which  ultimately  expressed  itself  in 
the  Federal  Reserve  System. 

Professor  Laughlin  was  born  at  Deerfield,  Ohio,  in  1850.  In 
1892,  at  the  time  of  the  opening  of  the  University  of  Chicago,  he  came 
to  the  city  to  join  the  faculty  of  the  new  institution  and  there  he  re- 
mained until  1916  when  he  retired.  For  more  than  thirty  years  he 
was  editor  of  the  Journal  of  Political  Economy  and  he  is  the  author 
of  nearly  twenty  books  on  economic  and  banking  subjects.  His  con- 
tributions to  the  development  of  a  sound  financial  system  have  been, 
in  many  respects,  far  greater  than  those  of  the  more  popularly  known 
bankers  and  business  men  of  the  country. 

It  is  difficult  to  decide  just  where  to  discontinue  a  discussion  of 
the  men  who  have  made  outstanding  contributions  to  the  upbuilding 
of  the  great  financial  power  of  the  nation's  second  financial  city. 
Countless  men  have  contributed  generously  to  this  development. 
Space,  however,  permits  only  the  most  outstanding  to  be  recorded 
here. 


CHAPTER  XXXV 
CURRENCY  AND  CREDIT 

Early  data  difficult  to  secure — Panics  traced  to  inelastic  credit  currency — Relations 
between  business  fluctuations  and  money  rates — Necessity  for  shipping  currency 
from  one  section  to  another — Stabilizing  effect  of  National  Bank  Act — Currency 
and  credit  problems  solved  by  the  Federal  Reserve  System — Effect  of  bankers' 
acceptance  market  on  credit — Illinois'  stand  for  sound  banking. 

It  is  exceedingly  difficult  to  make  any  comprehensive  analysis  of 
the  earlier  banking  periods  in  Illinois.  The  history  of  banking  in 
the  state  runs  back  approximately  one  hundred  years.  Up  to  the 
time  of  the  Civil  war  period  there  was  little  authentic  data  of  a  statis- 
tical character  or  even  scattered  facts  with  a  sufficient  backing  of 
authenticity  for  use  in  making  comparisons  or  drawing  conclusions 
regarding  the  economic  effect  of  credit  or  money  stringencies.  Such 
lessons  as  can  be  gleaned  from  early  experiences  in  midwest  banking 
afford  an  opportunity  only  for  the  most  casual  and  general  analyses. 
This,  to  a  large  extent,  held  true  for  the  Civil  war  period  as  well, 
but  after  that,  as  the  system  of  national  banks  developed,  there  came 
into  existence  statistical  information  which  still  affords  a  sound  basis 
for  study. 

Data  at  first  were  scattered  and  much  of  these  were  not  com- 
parable, but  as  time  passed  and  the  need  for  such  information  im- 
pressed itself  upon  bankers  as  well  as  upon  comptrollers  of  the 
currency  and  other  treasury  officials,  efforts  were  made  to  assemble 
material  in  a  form  which  would  make  it  available  at  least  for  analyses 
of  the  national  banking  system.  Later,  as  the  number  of  state  banks 
increased  even  to  the  extent  of  surpassing  that  of  national  institu- 
tions, they  began  to  contribute  their  share  to  general  statistical  in- 
formation until  within  the  last  few  years  we  have  had  comparatively 
satisfactory  data  on  which  to  predicate  a  comprehensive  study  of  the 
entire  banking  system. 

In  this  century  of  business  and  banking  development,  there  have 
recurred  with  more  or  less  frequency  disturbances  in  business  and 

607 


608  FINANCING  AN  EMPIRE 

credit  which  have  on  many  occasions  resulted  in  panics  with  varying 
degrees  of  far-reaching  and  disastrous  results.  Many  of  these  busi- 
ness disturbances  or  depressions  and  panics  have  been  directly  trace- 
able not  only  to  an  obvious  lack  of  credit,  but  also  to  the  startling 
inelasticity  of  our  credit  currency.  On  frequent  occasions,  in  order 
to  tide  business  over  and  provide  it  with  the  necessary  circulating 
media,  it  has  become  necessary  to  plunge  the  United  States  Treasury 
into  debt  through  the  offering  of  short-term  treasury  notes  which 
might  afford  a  basis  for  additional  currency.  This  necessity  arose 
conspicuously  during  the  panics  of  187*2,  1893  and  1907. 

On  this  account,  it  is  interesting,  in  summing  up  this  history  of 
banking  in  Illinois,  to  note  the  changes  that  have  taken  place  in 
methods  of  doing  business  and  the  effect  these  changes  have  had  on 
the  general  business  and  credit  structure.  Owing  to  the  absence  of 
authentic  data  and  statistics  during  the  earlier  years,  it  becomes 
necessary  to  confine  this  feature  of  the  study  largely  to  the  years 
following  1889.  Reference  to  the  accompanying  charts  reveals  the 
major  disturbances  to  business  during  this  period  and  the  parallel 
fluctuations  in  money  rates.  A  careful  study  shows  that  prior  to  the 
year  1914  each  disturbance  recorded  on  the  business  chart  not  only  is 
revealed  on  the  money-rate  chart  by  a  similar  general  trend,  but  that 
the  general  trend  was  there  arrived  at  through  innumerable  smaller 
fluctuations,  always  disturbing  to  the  peace  of  commerce  and  often 
amounting  to  genuine  panic.  Many  of  these,  as  will  be  noted  from 
the  jagged  outline  of  the  curves,  would  occur  in  a  single  year,  fre- 
quently greatly  disturbing  that  line  which  might  represent  the  average 
trend. 

Following  the  Baring  Brothers  failure  in  London  in  1890,  which 
was  sufficient  to  temporarily  disturb  the  markets  of  the  world,  there 
was  experienced  in  England  no  such  panic  as  that  which  occurred  in 
this  country.  The  Bank  of  England  was  then  in  a  position  to  meet 
the  demand  made  upon  the  London  market,  whereas  in  America  our 
banking  system  was  unable  to  withstand  the  shock  of  credit  strain; 
appreciating  this  situation,  men  conducting  business  in  London  re- 
tained their  confidence,  while  in  America  no  creditor  felt  certain  that 
his  debtors  would  meet  their  obligations.  Consequently,  credit  every- 
where in  America  was  restricted,  and  with  the  banks  unable  to  stand 
the  shock,  the  country  was  plunged  into  panic. 

Similarly,  through  occurrences  which  aroused  apprehension  in 
America,  the  panic  of  1893  descended  in  a  matter  of  hours  and  in 


BARING  FAILURE  CRISIS 
PANIC  OF  1893 

FREE  SILVER  PANIC 
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HISTORY  OF  BANKING  IN  ILLINOIS  611 

the  midst  of  general  business  prosperity.  Political  controversy  which 
became  so  widespread  as  to  throw  the  country  into  the  first  and  prob- 
ably the  most  far-reaching  economic  political  campaign  that  has  ever 
taken  place  in  the  history  of  the  republic,  if  not  of  the  whole  world, 
precipitated  a  condition  of  panic  in  1896.  This  reached  such  propor- 
tions that  during  its  progress  it  was  felt  even  beyond  the  seas  as 
gilt-edged  American  securities  were  sacrificed  and  thrown  over  by 
investors  fearing  an  indefinite  depreciation  of  this  well-secured  paper. 
The  money  chart  interestingly  records  the  ups  and  downs  of  the  two 
factions  involved  in  the  so-called  "free  silver"  campaign  by  a  series 
of  timid  but  nevertheless  certain  small  fluctuations  that  followed  upon 
the  many  losses  and  renewals  of  hope  which  occurred  during  the 
campaign. 

The  panic  of  1903  seems  to  have  been  consequent  upon  nothing 
whatsoever,  excepting  the  chronic  lack  of  credit-currency  elasticity. 
For  the  period  of  its  duration  needy  firms  and  individuals  paid  their 
bankers  as  much  as  one-sixth  of  the  amounts  they  borrowed  for  short- 
time  accommodations.  In  1907,  on  the  other  hand,  panic  was  directly 
traceable  to  over-trading  in  speculative  markets.  It  is  singular,  how- 
ever, and  significant  of  the  lacking  credit  elasticity,  that  this  panic 
like  others  which  had  preceded,  developed  in  the  midst  of  great  pros- 
perity. At  the  moment  of  its  outbreak  the  country  had  more  gold 
than  any  other  nation  in  the  world,  but  there  was  lacking  proper 
machinery  for  bringing  about  its  mobilization  and  a  prompt  dis- 
tribution to  areas  in  need. 

As  the  chart  shows,  prior  to  1914-  there  were  few  years  during 
which  the  trend  of  money  rates  was  steady  enough  to  be  dependable. 
Since  that  time,  while  on  the  whole  money  rates  have  traveled  up  and 
down  along  with  the  requirements  of  business,  it  is  plain  that  the 
journey  has  been  a  comparatively  smooth  path  and  one  undisturbed 
by  violent  minor  fluctuations  and  panic.  Recent  experiences  are  still 
fresh  in  the  business  mind.  The  outbreak  of  the  European  war  came 
as  the  finishing  touches  were  being  put  on  the  Federal  Reserve  Act, 
but  before  it  was  ready  to  go  into  operation.  As  a  result,  it  was  the 
Aldrich-Vreeland  Emergency  Currency  Act  that  afforded  the  first 
test  of  an  effort  to  absorb  the  shock  of  business  disturbances  through 
a  more  elastic  currency.  Crude  as  the  Aldrich-Vreeland  Act  was, 
it  nevertheless  tided  the  country  over  a  period  in  which  international 
markets  were  demoralized  and  the  American  money  markets  prac- 
tically paralyzed  by  the  outbreak  of  hostilities. 

Vol.     1—20 


612  FINANCING  AN  EMPIRE 

A  few  months  later  the  Federal  Reserve  Act  came  into  cvperation 
— a  trying  period  indeed  for  testing  out  a  new  banking  plan.  Further 
tests  were  made  when  America  entered  the  war  and  when  United 
States  troops  were  mobilized  on  European  soil.  The  post-war  in- 
flation and  the  period  of  deflation  that  followed  the  sharp  commodity 
market  declines,  resulting  from  the  inability  of  Europe  to  buy  and 
pay  for  out  surplus  farm  products,  brought  another  and  still  more 
severe  test  with  the  result  that  the  violence  experienced  under  far  less 
trying  conditions  was  avoided. 

Each  year  prior  to  the  establishment  of  the  Federal  Reserve  banks 
there  were  experienced  one  or  more  periods  of  strain  in  the  money 
markets.  These  tensions  came  always  as  a  result  of  seasonal  demands 
for  currency  to  harvest  and  market  crops  and  finance  the  feeding  of 
livestock,  while  often  they  were  the  result  of  numerous  other  occur- 
rences. In  order  to  relieve  this  currency  shortage,  it  became  neces- 
sary to  ship  money  to  sections  in  great  need  and  later  when  money 
became  redundant  it  had  to  be  shipped  back  again.  This  constant 
transfer  of  currency  led  to  domestic  exchange  quotations.  New 
York  and  Chicago  exchange  was  quoted  as  regularly  as  was  the  dis- 
count rate.  At  times  there  was  a  "before  clearings"  rate  and  another 
"after  clearings."  One  Chicago  broker  devoted  a  considerable  amount 
of  his  time  to  this  class  of  business,  matching  up  currency  needs  and 
buying  and  selling  New  York-Chicago  exchange.  Just  how  those 
movements  fluctuated  is  indicated  by  the  following  tables  which  show 
the  maximum  and  minimum  rates  of  each  month. 

Chicago  Currency  Receipts  and  Shipments 

Shipped  to  Received  from  Otlier 

the  Country  the  East  Receipts 

1907 

January $  7,462,330  $  1,170,000         $  7,424.709 

February 12,972,200  1, 9.50.000  3,841.1 2 1 

March 16,183,247  3,947.400  3,202,368 

April   7.8.59,(570  5,37.5,000  4.901.603 

May 8,713,580  ,560.000  .5.246.1(58 

June 9,429,400  1,8.58.000  4,004,128 

July 8,715,0.50  3.2.50.000  4.(5.58.272 

August 15,528,340  6,250,000  4.408.42(5 

September 20,415,190  5,748,000  3,342,640 

October 37.(594,255  10,505,740  2. 177.04(5 

November 13,674,065  25.013,800  1,013,944 

December    10,664,806  4.211,000  5,593,322 


HISTORY  OF  BANKING  IN  ILLINOIS  613 


Received  from 

Other 

the  East 

Receipts 

$    475,000 

$15,766,734 

1,220,000 

7,223,010 

940,000 

7,675,523 

330,000 

7,876,613 

350,000 

8,755,000 

340,000 

5,697,961 

320,000 

7,514,861 

480,000 

6,105,557 

3,519,000 

4,160,551 

1,600,000 

4,766,812 

580,000 

4,545,807 

599,250 

8,754,980 

Shipped  to 
the  Country 

1908 

January $  8,609,273 

February 6,756,483 

March 6,779,379 

April   8,968,937 

May 9,512,911 

June 12,399,111 

July 6,141,026 

August 10,887,350 

September 20,400,657 

October 17,631,331 

Noyember 12,103,513 

December   11,817,728 


1909 

January 10,031,275  560,000  11,099,852 

February 8,239,501  680,000  5,705,698 

March    .' 9,168,658  540,000  6,785,253 

April   8,115,669  430,000  7,018,201 

May 8,097,083  430,000  8,755,709 

June 11,759,400  320,000  7,023,314 

July 7,165,237  430,000  8,126,215 

August 10,506,029  2,660,000  4,721,667 

September 22,445,232  3,120,000  5,082,069 

October 22,343,628  6,729,500  8,714,300 

Xoyember 14,498,479  6,050,000  5,335,513 

December   14,667,529  450,000  6,492,700 


1910 

January 7,381,731  510,000  9,227,645 

February 8,012,275  3,780,000  5,794,892 

March 12,597,943  1,680,000  5,502,549 

April   11,616,406  650,000  7,098,728 

May 7,854,869  430,000  8,189,239 

June 8,846,054  2,080,000  6,064,857 

July 9,267,374  1,030,000  7,981,234 

August 13,249,701  4,130,000  7,017,396 

September 17,639,315  3,330,000  6,334,512 

October 22,084,301  1,580,000  5,797,885 

Xovember 12,175,474  1,498,000  7,055,182 

December    13,376,606  1,783,000  6,102,173 


Received  from 

Other 

the  East 

Receipts 

$2,350,000 

$13,877,328 

624,500 

6,011,928 

2,854,000 

8,072,796 

194,000 

8,357,099 

214,000 

8,802,723 

210,000 

7,511,924 

1,248,000 

7,283,350 

2,500,000 

5,565,479 

5,257,000 

5,008,440 

1,755,000 

6,515,805 

367,000 

5,739,091 

176,000 

7,972,855 

614  FINANCING  AN  EMPIRE 

Shipped  to 
the  Country 

1911 

January $  6,414,060 

February 7,425,288 

March   .' 8,793,135 

April   13,183,049 

Mav 8,082,113 

June 11,895,581 

July 7,550,903 

August 12,819,965 

September 19,239,489 

October 15,982,979 

November 11,801,273 

December   19,609,193 


1912 

January 10,854,069  11,477,694 

February 11,356,520  2,000,000  7,615,366 

March 12,048,413  2,130,000  5,774,637 

April   17,029,654  7,742,439 

May 10,573,466  8,969,565 

June 15,579,838  7,821,184 

July 13,094,445  12,145,317 

August 14,513,029  1,800,000  7,679,571 

September 21,445,378  2,950,000  7,054,472 

October 27,720,978  1,200,000  8,886,640 

November 20,792,742  2,139,000  6,858,000 

December    21,048,369  10,455,744 


1913 

January 8,975,210  500,000  17,181,959 

February 13,129,398              8,009,585 

March    .' 18,800,588              8,162,654 

April    12,872,176  850,000  13,536,370 

Mav 10,765,483              12,651,007 

June 12,381,602              9,072,647 

July 11,102,028  2,000,000  11,422,280 

August 14,846,329  4,400,000  8,650,139 

September 17,531,691  3,800,000  6,558,378 

October   19,977,610              8,640,184 

November 16,658,158               8.432,046 

December    16,959,457  2,050,000  10,056,519 


HISTORY  OF  BANKING  IN  ILLINOIS  *  615 

Shipped  to  Received  from  Other 

the  Country  the  East  Receipts 

1914 

January $  7,682,744  $500,000  $21,496,745 

February 7,869,495              10,130,126 

March 11,364,238              10,590,015 

April   17,373,690              13,961,807 

May 9,354,245  25,000  11,400,293 

June 10,962,362              11,698,932 

July 9,436,162               15,293,888 

August 27,550,285  950,000  6,832,236 

September 13,166,694  200,000  14,758,943 

October 8,786,877  75,000  16,263,161 

November 10,700,212              10,330,021 

December    12,889,269              12,965,564 

Thus  it  will  be  seen  that  in  this  respect,  at  least,  the  banking 
system  of  the  United  States  was  extremely  primitive.  The  National 
Bank  Act  had,  to  be  sure,  accomplished  something  in  the  direction 
of  stabilizing  the  trend  of  credit;  prior  to  its  enactment  there  were 
interest  fluctuations  of  as  much  as  twenty-five  per  cent  in  the  space 
of  a  single  year.  After  it  had  gone  into  effect  these  were  materially 
reduced  but  still  on  some  occasions  changed  as  much  as  ten  per  cent 
or  even  more  in  times  of  stress. 

With  the  development  of  the  Federal  Reserve  System,  however, 
this  transfer  of  currency  was  revolutionized.  Banks  thereafter  found 
it  no  longer  necessary  to  ship  money  between  large  money  centers 
but  made  transfer,  when  such  was  required,  through  the  Federal  Re- 
serve Banks.  Barriers  which  had  formerly  hindered  a  free  movement 
of  funds  were  removed.  Check  collections  were  made  faster,  safer 
and  less  expensive;  transfers  of  collected  funds  were  made  without 
cost  by  telegraph;  instead  of  requiring  the  shipment  of  currency, 
transfers  now  became  nothing  more  than  bookkeeping  entries;  banks 
ceased  to  be  dependent  upon  the  New  York  money  market;  the 
money  markets  of  other  cities  grew  in  importance;  and  all  this  ma- 
terially reduced  the  spread  in  interest  rates  and  the  seasonal  and  local 
tendency  of  credit  to  tighten.  Thereafter  any  business  man  with 
good  credit  might  be  sure  of  funds  for  conducting  necessary  opera- 
tions, nor  was  he  required  to  pay  abnormally  high  rates  because  he 
found  it  necessary  to  borrow  at  a  particular  time,  for  a  longer  rather 
than  a  shorter  period,  or  because  he  lived  in  a  western  rather  than 
an  eastern  center.  At  the  same  time  the  banker  was  assured  of  more 
continuous  employment  for  his  funds,  at  steadier  rates  throughout 


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618  FINANCING  AN  EMPIRE 

the  year,  and  with  greater  confidence  in  the  future,  thus  enabling 
him  to  adjust  his  interest  payments  and  other  expenses  to  his  income 
and  thereby  provide  the  business  of  his  community  with  better  accom- 
modations at  steadier  rates. 

The  immediate  means  for  sympathetic  expansion  and  contraction 
of  currency  supply  in  response  to  credit  needs  is  provided  by  the 
issue  and  withdrawal  of  Federal  Reserve  notes.  By  means  of  their 
use,  expansion  and  contraction  can  take  place  not  only  at  crop  mov- 
ing time,  when  large  demands  on  credit  are  made,  but  also  on  less 
noticeable  occasions,  such  as  seasons  of  tax  payment,  days  when  there 
is  a  heavy  withdrawal  for  wages,  holiday  seasons,  and  occasions  of 
less  usual  and  regular  occurrence.  The  abuse  of  this  note-issue  privi- 
lege is  avoided,  not  only  in  the  machinery  described  elsewhere  in  this 
volume  whereby  they  are  withdrawn  from  circulation  with  the  pay- 
ment of  commercial  indebtedness,  but  also  by  the  limitation  requiring 
each  Federal  Reserve  Bank  to  return  to  the  bank  of  issue  all  notes 
of  districts  other  than  its  own.  This  constitutes  a  factor  in  restrict- 
ing the  shipment  of  currency  between  member  banks.  In  other  words, 
each  Federal  Reserve  bank  is  required  to  take  out  of  circulation  the 
notes  of  all  other  Federal  Reserve  banks  that  come  to  it  in  the  regular 
course  of  its  business  and  is  permitted  to  reissue  only  its  own  notes, 
thus  keeping  them  always  at  home  where  they  can  be  controlled  in 
accordance  with  local  business  needs. 

The  after-the-war  test  showed  conclusively  that  the  United  States 
was  adequately  provided  with  a  banking  system  that  could  and  did 
avoid  credit  disturbances  even  in  times  of  severe  strain.  There  was 
a  time  then  when  gold  imports  poured  upon  the  country  at  the  rate 
of  between  one  and  two  million  dollars  a  day.  Never  before  in  all 
history  had  such  a  gold  movement  occurred,  and  it  was  a  well  known 
fact  that  formerly  far  smaller  gold  movements  had  had  a  great  in- 
fluence on  bank  credit  and  prices.  Economists  the  world  over  pre- 
dicted that  the  United  States  was  doomed  to  a  period  of  great  infla- 
tion of  both  credit  and  prices.  Xo  such  thing,  however,  occurred,  in 
spite  of  the  fact  that  this  country  absorbed  more  than  one  and  one- 
half  billion  dollars  of  gold  between  1920  and  1925,  an  increase  of 
more  than  sixty  per  cent  in  the  country's  total  stock  of  gold. 

At  the  time  this  gold  started  arriving,  the  banks  of  the  country 
were  heavily  indebted  to  the  Federal  Reserve  banks,  and  consequently 
much  of  the  incoming  gold  was  used  by  member  banks  to  pay  off 
these  debts.     Once  the  metal  was  lodged  with  the  Federal  Reserve 


HISTORY  OF  BANKING  IN  ILLINOIS  1621 

banks  it  could  be  put  to  work  again  only  in  the  ordinary  course  of 
new  borrowing,  and  conditions  were  not  then  such  that  much  bor- 
rowing took  place.  Prior  to  1914,  on  the  other  hand,  bank  loans  and 
deposits  rested  directly  on  gold  without  the  Federal  Reserve  note 
cushion  between.  Consequently,  every  loss  or  gain  in  gold  supply 
immediately  reacted  on  the  credit  structure  which  contracted  or  ex- 
panded in  sympathy.  Then  there  was  a  direct  relation  between  gold 
supply  and  bank  deposits.  Now,  however,  bank  deposits  are  based 
on  Reserve  bank  loans  plus  gold  stock,  a  difference  which  makes 
possible  the  meeting  of  emergencies  without  disastrous  results. 

Since  1914  there  has  also  come  into  existence  a  means  of  break- 
ing down  the  barriers  between  country  districts  and  central  money 
markets,  a  phase  of  credit  adjustment  which  is  not  always  met  with 
entire  satisfaction  by  the  general  credit  machinery  of  the  Federal 
Reserve  System.  This  has  taken  the  form  of  the  development  of  an 
American  market  for  bankers'  acceptances,  such  as  has  long  been  a 
prominent  factor  in  English  finance,  and  just  as  the  market  for  such 
paper  in  London  has  always  been  dependent  for  its  existence  on  the 
Bank  of  England,  so  in  America  it  could  not  continue  but  for  the 
Federal  Reserve  System.  By  1925  this  market  had  developed  to 
sizable  proportions  and  it  had  become  the  custom  for  bankers  in  many 
sections  to  carry  these  acceptances  in  their  portfolios  to  be  sold  to  the 
Federal  Reserve  banks  in  times  of  sudden  need  for  currency.  Thus 
the  bankers'  acceptance  market  is  capable  of  having  a  direct  and  note- 
worthy effect  on  the  supply  of  money  released  upon  the  market. 

That  the  power  of  reserve  mobilization  for  the  country  as  a  whole 
has  been  put  to  good  use  since  1914  is  further  demonstrated  by  the 
fact  that  individual  bank  reserves  have  been  growing  steadily  smaller 
year  by  year  so  far  as  actual  cash  in  vault  is  concerned.  More  and 
more  this  item  is  being  reduced  to  the  legal  minimum,  while  the  re- 
mainder of  the  reserves  are  carried  in  Federal  Reserve  banks  where 
they  are  made  immediately  available  to  any  need  anywhere  in  the 
United  States. 

In  the  nation's  constant  effort  toward  better  banking,  Illinois  has 
been  consistent  in  its  support  of  sound  economic  development.  Even 
in  the  old  free  banking  days  when  conditions  seemed  to  be  as  bad  as 
possible,  the  fundamental  structure  on  which  the  banks  of  Illinois 
were  predicated  was  also  the  structure,  to  a  large  degree,  upon  which 
the  subsequent  National  Bank  Act  was  based. 

When  the  whole  country  was  hampered  by  a  flood  of  unsound 


622  FINANCING  AN  EMPIRE 

and  wild-cat  money,  it  was  George  Smith  of  Chicago  who  gave  the 
middle  west  a  currency  that  could  be  implicitly  relied  upon.  It  will 
be  recalled,  too  that  to  avoid  the  troubles  generally  being  experienced 
in  the  country,  the  legislature  and  the  people  of  the  State  of  Illi- 
nois made  a  constitutional  provision  that  there  might  never  again  be 
any  chartered  banks  in  the  state.  Ridiculous  as  this  provision  seems 
to  us  now,  it  must  be  remembered  that  under  the  circumstances  which 
provoked  it,  it  too  was  an  endeavor  to  avoid  unsound  money. 

Upon  the  enactment  of  the  National  Bank  Act,  there  were  few 
states  that  undertook  to  carry  out  its  provisions  with  the  generosity 
and  cooperation  evidenced  in  Illinois;  in  subsequent  panics  this  state 
was  so  determined  to  maintain  its  sound  money  standards  that  its 
most  prominent  bankers  preferred  to  face  personal  financial  destruc- 
tion rather  than  follow  New  York's  lead  in  offering  clearing-house 
loan  certificates  to  their  customers. 

Although  a  center  of  interest  in  the  silver  controversy  of  1896, 
and  supplying  large  support  to  the  free  silver  advocates,  Illinois, 
nevertheless,  under  the  leadership  of  her  more  prominent  and  in- 
fluential citizens,  declared  by  a  large  majority  for  sound  money  and 
the  gold  standard. 

The  interest  taken  in  subsequent  proposed  national  legislation 
for  banking  and  currency  reform  again  proved  Illinois  to  be  for 
sound  economic  principles.  Much  opposition  was  shown  on  the  part 
of  Chicago  bankers  to  the  Aldrich-Vreeland  Act  and  the  proposed 
Federal  Reserve  Act,  but  this  opposition  was  always  of  a  constructive 
rather  than  of  a  destructive  character.  When  these  men  believed 
pending  legislation  to  be  fundamentally  unsound,  they  opposed  it 
vigorously,  not  by  stating  their  objections,  but  by  bringing  carefully 
prepared  arguments  and  suggestions  before  the  bodies  responsible 
for  such  legislation.  These  arguments,  it  will  be  recalled  were  sup- 
plied before  the  acts  were  passed,  in  time  to  permit  essential  changes. 

At  such  times  as  the  bankers  of  Illinois  were  not  successful  in 
modifying  proposed  legislative  bills  in  accordance  with  their  ideas 
prior  to  enactment,  they  have  made  every  effort  to  conform  with 
the  law  until  such  time  as  they  were  able  to  secure  the  desired  changes 
through  amendments.  This  attitude  was  particularly  evidenced  in 
the  instance  of  the  Aldrich-Vreeland  Act. 

Affairs  under  the  dominion  of  her  own  state  law  makers  have 
progressed  until  today  Illinois  justly  deserves  to  be  counted  among 
the  model  states  of  the  union  so  far  as  banking  practice  is  concerned. 


HISTORY  OF  BANKING  IN  ILLINOIS  623 

While  her  laws  have  been  inadequate,  due  chiefly  to  constitutional 
hindrances,  nevertheless,  her  bankers  have  constantly  imposed  restric- 
tions and  regulations  upon  themselves  which  have  made  for  improve- 
ments in  banking  situations  and  greater  protection  for  deposited 
funds.  Private  banks  were  abolished,  not  because  they  offered  unde- 
sirable competition  to  other  banking  institutions,  but  because  the 
prominent  bankers  of  the  state  realized  the  public  need  for  such  aboli- 
tion. It  will  be  recalled  that  large  numbers  of  influential  private 
bankers  threw  their  forces  to  the  support  of  proper  banking  legis- 
lation. 

Thus,  from  the  earliest  days  to  the  present  time,  sound  money 
and  bank  customer  protection  have  stood  forth  as  ideals  toward  which 
the  banking  interests  of  Illinois  have  aspired  until  bank  failure  sta- 
tistics now  indicate  that  Illinois  has  become  one  of  the  safer  states  in 
the  country  so  far  as  the  protection  of  the  funds  of  her  bank  deposi- 
tors is  concerned. 


APPENDIX 

REPORT  ON  THE  NATIONAL  BANK  CURRENCY  ACT 

At  a  meeting'  of  bank  officers,  held  at  the  New  York  Clearing  House  on  Saturday,  the 
5th  of  December,   1863,   it  was 

Resolved,  That  the  following  Report  of  the  Committee,  appointed  on  the  6th  of  October 
last,  be  accepted,   and  that  it  be  printed  and  distributed  under  the  direction  of  said  Committee. 

At  a  meeting  of  bank  officers,  held  on  the  6th  of  October  last,  a  committee  was  ap- 
pointed to  report  on  the  National  Bank  Currency  Act,  as  to  its  prospective  effects  upon 
the  currency  of  the  nation  and  the  national  credit;  and  report  what  action,  if  any,  devolves 
upon  the  banks  in  the  premises. 

The  undersigned,  members  of  a  committee  thus  appointed,  beg  leave  to  report  as  follows: 

The  system  referred  to  in  the  foregoing  resolution,   is  authorized   by  an  Act  passed  at 

the  last  session  of  Congress,  entitled,  "An  Act  to  provide  a  National   Currency,  secured   by 

a  pledge  of  United  States  stocks,  and  to  provide  for  the  circulation  and  redemption  thereof." 

How  closely  this  subject  may  be  connected  with  vested  interests,  corporate  or  individual, 
now  in  existence,  your  Committee  do  not  make  the  object  of  their  inquiry.  A  scheme  "to 
provide  a  national  currency,  secured  by  United  States  stocks,"  is  of  too  vast  importance 
to  the  whole  people  and  government  of  this  country,  to  be  dwarfed  by  any  partial  or  mere 
professional  considerations. 

As  men,  therefore,  accustomed  to  investigate  questions  of  finance,  just  as  business  men 
study  their  affairs, — your  Committee  desire  to  submit  the  result  of  their  researches.  Not 
in  any  spirit  of  cavil,  or  fault-finding — far  from  it — but  with  deep  convictions  that  the 
subject  is  so  grave,  and  fraught  w'ith  possible  consequences  so  momentous,  that  the  best 
thoughts  of  your  Committee  may   fail  to   do  it  justice. 

Various  amendments  were  suggested  before  the  passage  of  the  Act,  but  not  adopted: 
the}'  may  be  incorporated  hereafter,  or,  the  law  may  be  repealed  altogether,  but  for  present 
purposes  it  must  be  regarded  as  it  stands  on  the  Statute  Book. 

Three   important  questions   demand   serious   consideration: 

1st.     What  is   this   scheme  "to   provide  a  national   currency"? 

2d.     What  will  be  the  effect  of  the  proposed  currency  on  the  interests  of  the  people? 

3d.     What  will  be  the  probable  consequences  to  the  National  Government? 

First,  as  to  the  plan:  Section  5  of  the  law  provides  that  any  number  of  persons,  not 
less  than  five,  may  become  an  association  for  the  purpose  of  banking.  Section  6  enacts,  that 
the  capital  in  cities  shall  not  be  less  than  $100,000,  but  in  the  country  it  may  be  $50,000. 
Section  7  provides  that  thirty  per  cent.,  at  least,  of  the  capital  stock  shall  be  paid  in,  at 
the  time  of  commencing  business;  and  the  remainder  in  ten  per  cent,  instalments  as  often 
as  once  in  two  months  thereafter.  Section  12  declares,  "Eor  all  debts,  contracted  for  cir- 
culation, deposits,  or  otherwise,  each  shareholder  shall  be  liable  to  the  amount,  at  their 
par  value,  of  the  shares  held  by  him,  in  addition  to  the  amount  invested  in  such  shares." 
Section  15  provides  that  every  association  shall  transfer  and  deliver  to  the  Treasurer  of 
the  United  States,  any  United  States  bonds,  bearing  interest,  to  an  amount  not  less  than 
one-third  of  the  capital  stock  paid  in.  Section  16  declares  that,  upon  making  such  transfer, 
the  association  shall  receive  circulating  notes  to  the  amount  of  ninety  per  cent,  of  such  bonds. 

By  way  of  elucidating  the  foregoing  provisions,  your  Committee  will  assume  that  a 
national  bank,  with  a  capital  of  $50,000,  is  to  be  organized.  The  amount  required  to  be 
paid  in,  is   thirty   per  cent,  thereof,  say $15,000 

One-third  of  such  paid-in  capital  is  to  be  invested  in  bonds,  say 5,000 

Leaving    capital    of $10,000 

On  depositing  the  $5,000  in  bonds,  circulating  notes  to  the  amount  of  ninety  per  cent, 
are  to  be  issued  to  the  bank,  say  $4>,500.  Then  fourteen  months  are  allowed  in  which  to 
complete  the  payment  of  the  capital,  say  ten  per  cent.,  or  $5,000,  every  two  months.  During 
which  time,  the  bank  is  doing  business,  receiving  individual,  or  even  United  States  Govern- 
ment deposits,  on  an  active  capital  of  $10,000! 

Section  19  requires  the  payment,  semi-annually,  to  the  United  States,  of  half  of  one 
per  centum  on  the  amount  of  circulating  notes,  say  one  per  cent,  a  year.  Section  20  declares 
that  the  notes  shall  be  received  at  par  in  all  parts  of  the  United  States,  in  payment  of 
taxes,  excises,  public  lands,  and  all  other  dues  to  the  United  States,  except  for  duties  on 
imports,  and  also  for  all  salaries  and  other  debts  and  demands  owing  by  the   United  States 

624 


HISTORY  OF  BANKING  IN  ILLINOIS  *    625 

to  individuals,  corporations  and  associations  within  the  United  States,  except  interest  on 
public  debt. 

Sections  25,  20',  27,  and  28,  provide  for  the  protest  by  the  holder,  and  redemption  by 
the  United  States,  of  the  circulating  notes  of  any  bank  which  may  fail  to  redeem  them, 
at  the  office  of  such  association,  in  "lawful  money  of  the  United  States."  Section  -tl  requires 
every  Mich  association  to  have  on  hand,  at  all  times,  in  lawful  money  of  the  United  States, 
an  amount  equal  to  at  least  twenty-rive  per  cent,  of  the  aggregate  of  its  outstanding  notes 
of  circulation  and  its  deposits:  provided,  however,  that  clearing-house  certificates  shall  be 
deemed  to  be  lawful  money  in  the  possession  of  any  such  association:  and  provided,  further, 
that  any  balance  due  to  any  association,  organized  under  said  Act,  in  other  places,  from 
associations  in  Boston,  New  York,  Philadelphia,  and  other  cities  named,  may  be  deemed 
a  part  of  the  lawful  money  required,  to  the  extent  of  three-fifths  of  the  said  twenty-five 
per  centum. 

Your  Committee  believe  the  foregoing  analytical  summary  embraces  the  substance  of 
the  "Act  to  provide  a  National  Currency."  The  bills  are  receivable  by  the  United  States 
for  all  dues  except  for  duties  on  imports,  and  may  be  paid  by  the  United  States  to  all 
individuals,  corporations,  and  associations,  except  for  interest  on>  public  debt.  But  they 
are  not  a  legal  tender  between  man  and  man,  nor  has  any,  association,  or  banking  institution 
a  legal  right  to  pay  them  out  in  discharge  of  its  debts  to  an  individual  or  corporation. 
This  disposes  of  the   first  inquiry — "What   is  this  scheme,"  &c. 

To  the  second  inquiry,  "What  will  be  the  effect  of  the  proposed  currency  on  the  interests 
of  the  people?"  your  Committee  respond: 

Perhaps  the  most  attractive  feature,  with  regard  to  the  national  bank  currency,  is 
the  prevalent  idea  that  it  is  to  be  a  currency  of  uniform  value  all  over  the  United  States, 
from  Maine  to  California;  and,  indeed,  its  being  secured  by  United  States  stocks  favors 
this  supposition.  Look  at  the  practical  working  of  the  scheme,  and  see  whether  this  be 
well    founded  or  fallacious. 

It  must  have  been  observed  by  all,  that  the  applications  for  banks  under  this  law, 
though  numerous,  are  for  small  amounts,  many  of  only  $50,000,  or  $60,000,  capital.  Your 
Committee  know  of  very  few  which  are  designed  to  do  a  legitimate  banking  business.  There 
may  be  others,  but  from  the  small  amount  of  capital  of  more  than  a  hundred  of  them, 
and  the  localities  of  several,  your  Committee  strongly  suspect  them  of  being  intended  for 
banks  of  circulation  only,  not  regular  business  banks  for  deposits  and  discounts,  but  what 
are  known  in  our  Western  States  by  the  expressive  term  "Wild  Cat  Banks."  It  will  be 
borne  in  mind  that  the  bills  of  these  banks  are  not  redeemable  at  an  agency,  like  the  country 
banks  of  New  York  State,  but  only  "at  the  office  of  the  association."  There  the  bills  must 
be  presented  for  payment,  in  lawful  money  of  the  United  States,  and  if  not  paid,  pro- 
tested; then  taken  to  the  Comptroller  of  the  Treasury,  in  Washington,  who  after  thirty 
days   is   bound  to   redeem  them. 

But  how  are  the  people  to  make  such  presentation?  Or  how  can  even  any  institution, 
if  it  were  disposed,  afford  to  do  it?  All  the  bills,  we  are  told,  are  to  be  printed  from  the 
same  plate,  having  only  the  locality  and  number  to  distinguish  one  from  another.  Now, 
is  it  to  be  presumed,  that  any  person  will  be  able  to-  discriminate  between  them  when  ah 
look  so  nearly  alike?  If  not,  what  is  to  prevent  a  large  amount  of  bills,  having  their 
legitimate  homes  in  Minnesota,  Nevada,  or  California,  but  their  places  of  issue  among  the 
brokers  in  Wall  street,  from  being  circulated  in  New  York  or  any  neighboring  city?  Sup- 
pose eight  or  ten  millions,  belonging  nominally  in  as  many  different  states,  to  be  put  afloat 
in  New  York,  how  can  the  City  get  rid  of  them?  By  what  process  procure  a  redemption 
of  this  uncurrent  money?  Whose  business  will  it  be  to  save  a  hundred  dollars  of  this 
bank,  and  a  thousand  of  that,  and  send  them  to  Wisconsin  and  Dakota,  only  to  be  protested, 
returned  to  New  York,  then  sent  to  Washington,  and  after  thirty  days  redeemed  there  at  par? 

Or,  suppose  the  man  in  business  has  taken  these  bills,  and  has  a  note  to  pay  at  bank; 
the  bank  cannot  receive  his  "national  currency,"  because  it  has  no  legal  right  to  pay  it 
out  to  either  depositor  or  bill-holder.  What,  then,  can  he  do?  He  has  but  one  source 
of  relief;  lie  must  take  the  bills  to  the  uncurrent-money  broker — perhaps  the  very  man 
who  issued  them — and  submit  to  a  discount  of  from  one  to  five  per  cent.,  according  to  the 
distance  of  the  place  where  the  bank  is  supposed  to  have  "a  local  habitation"  and  a  number. 
The  man  who  thought  he  had  a  currency  of  "uniform  value  all  over  the  United  States," 
finds,  when  he  leaves  the  broker's  office,  that  he  has  one  or  two  hundred  dollars  less  than 
when  he  entered  there.  But  it  is  not  merely  the  business-man  who  is  to  suffer.  This  de- 
preciated currency  will  become  the  general  medium  of  trade.  The  laboring  man  and  poor 
woman,  when  they  make  their  small  purchases,  will  find  five  or  ten  per  cent,  added  to  the 
price  they  would  be  required  to  pay,  provided  they  could  offer  legal  tender  notes.  Is  it 
fair  to  throw  this  unnecessary  burden  on  the  poor  and  ignorant?  Who  is  benefited?  Only 
the  man  who  perverts  the  legitimate  use  of  a  banking-law  of  the  United  States,  which, 
however,  by  its  own  imperfections,  has  stimulated  his  cupidity  and  instigated  unsound  banking. 

If  more  currency  is  required  for  the  legitimate  business  of  the  country,  why  should 
not  the  government  avail  itself  of  the  opportunity  to  issue  a  further  amount  of  legal  tender 
notes?  They  do  furnish  a  currency  of  uniform  value — less  the  expense  of  transportation 
— in  every  part  of  the   Union.     Whereas  the  National   Bank   currency  is   not  lawful  money, 


626  FINANCING  AX  EMPIRE 

and,  being  payable  in  different  parts  of  every  State,  must  be  subject  to  the  laws  of  ex- 
change, which  are  as  infallible  as  the  laws  of  gravitation,  and  necessitate  a  discount  on 
bank  bills  payable  at  a  distance  from  business-centres,  even  when  redeemable  in  specie. 
Paper  currency,  merely,  is  poor  enough,  at  the  best;  why  then  should  the  government  be 
willing  to  give  the  people  an  inferior  paper  currency,  when  it  commands  a  superior  one? 
That  is  the  question! 

Another  point  deserves  consideration.  The  total  amount  of  currency  authorized  by  the 
National  Hank  Act  is  three  hundred  millions  of  dollars.  Does  any  one  believe  that  so 
large  a  sum  can  be  added  to  the  present  paper  circulation  of  this  country  without  causing 
undue  inflation  of  price  in  every  commodity? 

The  amount  of  legal  tender  notes  in  circulation  may  be   set  down  at !J>400,000,000 

In  May  last  the  bank  note  circulation  of  the  loyal  states  amounted  to 108,400,000 

Total     $568,400,000 

Now,  if  you  add  to  the  foregoing,  $300,000,000,  national  bank  currency,  will  not  the 
inevitable  tendency  be  to  a  great  depreciation  of  paper,  as  compared  with  gold,  creating 
enhanced  prices,  and  increased  expense  of  living  to  every  class  of  society?  It  must  be  re- 
membered, too,  that  we  are  on  the  eve  of  a  further  issue  of  "legal-tender,"  in  the  form  of 
treasury  notes  bearing  five  per  cent,  interest.  These  notes  are  a  legal  tender  for  the 
face  of  them.  Fifty  millions  have  recentlv  been  sold  by  the  government,  under  a  law 
authorizing  the  issue' of  $400,000,000;  leaving  .SJ.50,000,000,  yet  at  the  disposal  of  the  govern- 
ment. Can  it  be  considered  wise,  or  prudent,  to  create  a  large  amount  of  new  bank  currency 
under  these  circumstances? 

Your  Committee  do  not  state  that,  in  their  judgment,  the  present  issue  of  legal-tender 
notes  is  in  excess  of  the  wants  of  government  and  requirements  of  business.  They  are 
aware  that  the  average  amount  of  legal-tender  notes  held  by  New  York  city  banks,  for 
several  months  past,  has  not  exceeded  twenty  millions  of  dollars,  although  those  notes  now 
constitute  the  reserve — or  medium  of  settlement — in  place  of  specie.  Had  this  currency 
been  superabundant,  it  would  have  shown  itself — as  it  certainly  has  not — in  large  accumula- 
tions at  the  principal  cities, — New  York,  Boston,  and  Philadelphia. 

Various  causes  combined  have  created  an  increased  demand  for  currency;  and  the 
following  may  be  regarded  as  among  the  principal  ones,  namely:  (1st.),  the  withdrawal 
of  specie  from  commercial  and  mercantile  transactions:  (2d.),  the  advance  in  prices  of 
all  commodities:  (3d.),  the  shortening  of  credits  in  every  branch  of  business:  (4th.),  the 
large  payments  to  the  army  and   navy,   and   other  war  disbursements. 

This  leaves  out  of  the  account  the  whole  western  country — which,  by  the  annihilation, 
two  and  a  half  years  ago,  of  its  banking  institutions  (founded  on  state  stocks),  was  com- 
pletely emptied  of  paper  currency,  and  had  to  be  filled  up  anew,  not  only  to  the  measure 
of  its  former  fullness,  but  far  beyond  it;  for  the  United  States  has  been  buying  largely 
of  almost  all  the  products  of  the  West;  and  not  only  the  United  States  government,  but 
Europe  also,  has  been  a  purchaser,  and  all  has  been  paid  for  in  "legal  tenders."  Indeed, 
the  demand  from  the  West  for  these  notes  is  constantly  increasing,  being  larger  this  autumn 
than  ever  before.  This  currency  the  people  are  satisfied  with.  It  is  a  direct  promise  of 
the  government,  pure  and  simple.  It  holds  every  dollar  of  property  in  the  country,  cor- 
porate and  individual,  pledged  for  its  redemption.  By  Act  of  Congress  it  is  a  legal  tender, 
and  has  recently  been  so  pronounced  by  the  Jiighest  tribunal  in  the  State  of  New  York. 
As  lawful  money,  it  is  as  good  between  individuals  as  between  the  government  and  an 
individual;    it    pays   bank    debts   as    well   as  shop   debts,   without   any    discount    whatever. 

But,  it  has  been  pertinently  asked,  would  you  continue  this  paper  currency  in  the 
form  of  legal-tender,  forever?  is  this  issue,  made  from  the  necessity  of  the  case,  to  become 
perpetual?  Certainly  not.  The  remedy  is  very  simple.  When  the  war  ends,  the  disburse- 
ments of  the  government  will  be  at  once  reduced  one-half  or  two-thirds.  Of  course,  then, 
the  government,  to  that  extent,  ceasing  to  pay  out  legal-tender,  the  volume  of  circulation 
will  decrease.  The  notes  will  also  be  converted  into  interest-bearing  securities  of  the  gov- 
ernment, and  then  cancelled — the  United  States  having  no  further  use  for  them;  and 
thus,  in  two  or  three  years  the  legal-tender  notes  will  be  reduced  to  a  minimum  amount 
— to  as  low  a  sum,  that  is,  as  the  people  may  desire — when  they  may  be  redeemed  in  specie 
by  the  government,  and  re-issued  or  not.  There  is  no  necessity,  therefore,  as  your  Com- 
mittee conceive,  for  the  creation  of  a  national  bank  currency — as  has  been  suggested  in 
Washington— in  order  that  it  may  be  substituted  by  the  government  for  legal-tender  currency. 
Besides,  if  the  legal-tender  should  be  withdrawn  to  make  room  for  the  national  bank  cur- 
rency,  what  then  will  be  left,  with  which  to  redeem  that  national  currency,  at  the  counters 
of  the  banks?  Not  specie,  surely,  for  they  will  hardly  be  expected  to  buy  *  that  at  forty 
or  fifty  per  cent,  premium,  to  pay  out  at  par  in  the  redemption  of  their  bills!  And  it 
may  be  justly  feared  that  these  national  banks  will  come  to  create  a  powerful  interest 
throughout  the  country  in  favor  of  a  protracted  suspension  of  specie  payments,  which  it 
would  be  to  their  advantage  to  continue  for  an  indefinite  period.  This  is  a  very  serious 
consideration,  and  is,  of  itself,  sufficient  to  excite  great  apprehension  in  view  of  such  probable 
result.      Is    it    as    safe    to    have    a    bank    paper    circulation    without    any    specie    at    all    in    the 


HISTORY  OF  BANKING  IN  ILLINOIS  627 

hanks,   as   it    is   to   keep   a    hank   currency   which    is   protected   already    by    a   handsome   specie 
reserve  in  hand? 

Indeed,  the  proposed  substitution  of  bank  currency  for  legal-tender,  would  he  a  direct 
loss  and  injury  to  the  government.  Suppose,  for  instance,  the  three  hundred  millions  hank 
currency  should  be  used  by  government  in  place  of  a  like  amount  of  legal-tender  with- 
drawn, would  not  the  government  lose  the  interest  on  that  sum,  which,  at  six  per  centum, 
amounts  to  eighteen  millions  annually?  Besides  the  government  being  obliged  to  hire 
the  money,  in  some  other  way,  the  people  must  be  taxed  for  the  interest  on  it,  in  addition 
to  what  they  now  pay.  The  government  certainly  requires  all  the  aid  that  can  be  got 
from  the  use  of  its  legitimate  credit.  The  people  have,  therefore,  a  direct  pecuniary  interest 
in  this  question;  for  the  Treasury  would  not  only  lose  thereby  an  annual  interest  of  eighteen 
millions  dollars,  hut  it  would  lose  the  use  of  three  hundred  millions  which  it  now  has  with- 
out interest,  derived  from  that  amount  of  legal-tender  notes;  except,  indeed,  to  the  extent 
it  might  dispose  of  its  securities — in  competition  with  other  sellers — for  such  bonds  as 
may  he  lodged  for  national  bank  currency.  The  people  are  now  supplied  with  a  satis- 
factory currency,  but  in  the  national  bank  currency  they  would  have  one  that  is  sure  to 
become  more  or  less  depreciated  by  its  very  nature.  Can  any  one  doubt,  then,  that  the 
effect  of  the  proposed  currency  on  the  welfare  of  the  people  of  this  country  would  be 
extremely   injurious? 

It  now  remains  for  your  committee  to  present  their  views  under  the  third  head,  viz.: 
What  will  be  the  probable  consequences  of  the  currency  to  the  national  government?  This 
is  by  far  the  most  serious  and  important  consideration  of  all.  Currency  may  depreciate. 
Individuals  may  lose  or  suffer  and  the  nation  still  continue  prosperous.  But  if  the  credit 
and  integrity  of  our  national  government  shall  be  impaired  by  the  operations  of  a  stupendous 
hanking  scheme,  unwise  in  its  inception,  untimely  in  its  birth,  and  fraught  with  tendencies 
to  evil  consequences,  it  were  better,  far  better,  that  it  had  fallen  still-born. 

That  your  Committee  may  not  even  seem  to  exaggerate  they  will  state  what  appears 
to  them  to  be  the  simple  state  of  affairs  which,  under  the  circumstances,  sooner  or  later, 
is  sure  to  exist. 

The  United  States  will  hold,  in  charge  of  the  Treasurer  at  Washington,  its  own  bonds 
for  the  security  and  final  redemption  of  the  circulating  notes  of  the  national  hanks,  under 
an  express  provision,  that  after  protest  at  the  office  of  emission,  the  government  will,  either 
by  a  sale  of  such  securities,  or  by  assuming  them,  redeem  the  protested  notes.  For  a  time 
ail  may  go  on  swimmingly.  The  banks  will  get  out  their  circulation,  and  increase,  from 
time  to  time,  till  a  hank,  originally  of  $50,000,  capital,  will  have  swollen  its  nominal  capital 
and  increased  its  circulating  notes  to  $500,000,  without  perhaps  ever  having  redeemed, 
even  with  legal  tender,  $10,000,  at  its  remote  home  office.  But  panics  have  periodically 
come  upon  us.  They  will  probably  always  come.  An  increased  volume  of  paper  currency 
is  surely  no  guarantee  that  we  are  less  subject  to  them  now  than  we  have  been  heretofore. 
On  the  contrary,  is  not  the  public  credit  more  liable  to  a  collapse  than  it  ever  was?  And 
besides,  this  law  permits  the  establishment  of  a  new  "Pet  bank  system,"  (the  first  phase 
of  which  is  already  seen  in  this  city,)  which  is  liable  to  do  far  more  harm,  public  and 
private,   than   even   the  old  one  did. 

Ift  a  panic,  the  hills  of  banks  are  sent  home  for  redemption.  The  notes  of  merely 
circulating  hanks,  whether  under  the  national  law,  or  under  the  law  of  the  State  of  New 
York,  are  likely  to  be  protested  for  non-payment;  for  such  banks  do  not  keep  specie,  or 
other  lawful  money  of  the  United  States,  with  which  to  redeem  their  bills.  They  count 
on  keeping  their  bills  afloat,  as  their  only  source  of  profit.  The  bills  of  a  national  bank 
being  protested,  are  sent  to  Washington  for  redemption.  At  such  a  time — in  a  crisis — 
the  government  has  no  spare  funds,  with  which  to  take  up  bank-bills.  Importations  having 
fallen  off,  the  receipts  for  duties  are  lessened.  Nothing  remains  but  to  put  the  United 
States  bonds  on  the  market,  and  sell  them  for  what  they  will  bring.  The  amount  is  large, 
but  there  is  no  help  for  it.  One-third  of  the  whole  three  hundred  millions  may  be  returned 
to  Washington,  under  protest;  but  suppose  the  amount  is  only  half  that  sum,  who  is  to  he 
found,  under  such  circumstances,  to  bid  even  fifty  cents  on  the  dollar  for  fifty  millions 
of  United  States  bonds,  especially  when  it  is  known  that  there  are  two  hundred  and  fifty 
millions  more  that  may  be  forced  on  the  market  under  similar  circumstances?  Where, 
then,  is  the  credit  of  the  United  States  government?  Prostrate,  hroken  down,  in  the 
vain  effort  to  sustain  a  gigantic  scheme  of  so-called  National  currency.  Why  should  the 
people  for  one  moment,  countenance  a  plan  fraught  with  such  danger,  or  even  such  pos- 
sibility of  danger  to  our  country?  Very  likely,  too,  this  calamity  may  befall  us,  when 
not  only  domestic  troubles  harass,  but  foreign  complications  most  threaten  the  peace  of 
our   land. 

We  have  already  seen  in  this  State  the  operation  of  a  like  law  of  New  York,  on  a 
small  scale.  New  York  state  stocks  are  selling  at  present  at  a  large  advance  over  par; 
but  in  1857,  when  only  a  few  hundred  thousand  dollars  in  them  were  forced  on  the  market, 
to  redeem  bank  notes,  secured  by  them,  they  were  sold  at  a  reduction  of  more  than  thirty 
per  cent.  Suppose  twenty-five  millions  bad  been  thus  thrown  on  the  market,  can  any  one 
doubt  that  they  would  have  gone  below  fifty?  This  is  a  trifling  amount  compared  with 
the    millions    that    may    be    "rushed"    home    for    redemption,    under    the    national    currency 


628  FINANCING  AN  EMPIRE 

system.  The  disastrous  consequences  will  be  proportionate  to  the  magnitude  of  the  trans- 
actions. For  after  all,  this  Act  of  Congress  is  only  a  modified  form  of  the  New  York 
free  banking  law  of  1838,  with  the  best   points  of  the  State  law   left  out. 

Your  Committee  have  aimed  to  show  the  nature,  and  inherent  defects,  of  the  National 
Currency  Act.  They  have  described  the  evils  which  will  befall  the  people  of  this  coun- 
try if  the  currency  become  depreciated,  as  they  believe  it  "inevitably  must  should  this 
system  be  persevered  in;  and  they  have  attempted  to  portray  the  disastrous  consequences 
to  the  character  and  credit  of  our  general  government,  if  it  allow  itself  to  be  involved 
in  this  uncalled-for  and  dangerous  financial  measure. 

It  would  have  been  easy  to  show  that  the  welfare  and  interest  of  the  United  States 
Government  are  identical  with  those  of  the  people,  in  the  existing  bank  capital  of  the 
loyal  States — now  amounting  to  three  hundred  and  thirty  millions — also,  in  the  circulation 
— as  before  stated,  one  hundred  and  sixty-eight  millions — and  deposits  much  larger  still; 
inasmuch  as  these  banks  are  the  financial  instruments  for  wielding  the  concentrated  capital 
of  the  country.  But  your  Committee  have  purposely  avoided  everything  of  a  private  or 
even  a  local  character;  being  desirous  of  treating  the  subject  as  of  general,  rather  than 
special  interest.  They  have  looked  at  it  from  a  national  point  of  view,  as  patriots  and 
not  as  partisans.  They  have  regarded  the  well-being  of  the  whole  community,  and  not  the 
interest  of  any  one  class,  calling,  or   profession. 

In  conclusion,  your  Committee,  without  any  specific  recommendation,  would  leave  to 
the  wisdom  and  judgment  of  the  Association,  to  decide  the  course  they  may  deem  ex- 
pedient to  adopt  in  the  premises. 

All  of  which  is  respectfully  submitted. 

John  E.  Williams. 
John  L.  Everitt. 

New  York,  Nov.  28th,  1863. 


HISTORY  OF  HANKING  IN  ILLINOIS 


629 


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630  FINANCING  AN  EMPIRE 

THE   ALDRICH-VREELAXD   ACT 

Act  May  30,   1908. 

An    Act   Authorizing   National    Currency    Associations,    the    Issue    of    Additional    National    Bank 
Circulation,   and  Creating  a  National   Monetary   Commission. 

FORMATION   OF  NATIONAL  CURRENCY   ASSOCIATIONS CONDITIONS   UNDER   WHICH    BANKS  BELONGING    TO 

NATIONAL    CURRENCY    ASSOCIATIONS    MAY    TAKE     OUT    ADDITIONAL    CIRCULATION 

Be  it  enacted,  etc.,  That  national  banking  associations,  each  having  an  unimpaired  capital 
and  a  surplus  of  not  less  than  twenty  per  centum,  not  less  than  ten  in  number,  having  an 
aggregate  capital  and  surplus  of  at  least  five  millions  of  dollars,  may  form  voluntary  associa- 
tions to  be  designated  as  national  currency  associations.  The  banks  uniting  to  form  such 
association  shall,  by  their  presidents  or  vice-presidents,  acting  under  authority  from  the  board 
of  directors,  make  and  file  with  the  Secretary  of  the  Treasury  a  certificate  setting  forth  the 
names  of  the  banks  composing  the  association,  the  principal  place  of  business  of  the  associa- 
tion, and  the  name  of  the  association,  which  name  shall  be  subject  to  the  approval  of  the 
Secretary  of  the  Treasury.  Upon  the  filing  of  such  certificate  the  associated  banks  therein 
named  shall  become  a  body  corporate,  and  by  the  name  so  designated  and  approved  may  sue 
and  be  sued  and  exercise  the  powers  of  a  body  corporate  for  the  purposes  hereinafter  men- 
tioned :  Provided,  that  not  more  than  one  such  national  currency  association  shall  be  formed 
in  any  city :  Provided  further,  That  the  several  members  of  such  national  currency  associa- 
tion shall  be  taken  as  nearly  as  conveniently  may  be,  from  a  territory'  composed  of  a  State 
or  part  of  a  State,  or  contiguous  parts  of  one  or  more  States :  And  provided  further,  that  any 
national  bank  in  such  city  or  territory,  having  the  qualifications  herein  prescribed  for  mem- 
bership in  such  national  currency  association,  shall,  upon  its  application  to  and  upon  the 
approval  of  the  Secretary  of  the  Treasury,  be  admitted  to  membership  in  a  national  currency 
association  for  that  city  or  territory  and  upon  such  admission  shall  be  deemed  and  held  a 
part  of  the  body  corporate,  and  as  such  entitled  to  all  the  rights  and  privileges  and  subject  to 
all  the  liabilities  of  an  original  member :  And  provided  further,  That  each  national  currency 
association  shall  be  composed  exclusively  of  banks  not  members  of  any  other  national  currency 
association. 

The  dissolution,  voluntary  or  otherwise,  of  any  bank  in  such  association  shall  not  affect 
the  corporate  existence  of  the  association  unless  there  shall  then  remain  less  than  the  mini- 
mum number  of  ten  banks :  Provided,  however,  That  the  reduction  of  the  number  of  said 
banks  below  the  minimum  of  ten  shall  not  affect  the  existence  of  the  corporation  with  respect 
to  the  assertion  of  all  rights  in  favor  of  or  against  such  association.  The  affairs  of  the  asso- 
ciation shall  be  managed  by  a  board  consisting  of  one  representative  from  each  bank.  By-laws 
for  the  government  of  the  association  shall  be  made  by  the  board,  subject  to  the  approval  of 
the  Secretary  of  the  Treasury.  A  president,  vice-president,  secretary,  treasurer,  and  an  ex- 
ecutive committee  of  not  less  than  five  members,  shall  be  elected  by  the  board.  The  powers 
of  such  board,  except  in  the  election  of  officers  and  making  of  by-laws,  may  be  exercised 
through  its   executive  committee. 

The  national  currency  association  herein  provided  for  shall  have  and  exercise  any  and  all 
powers  necessary  to  carry  out  the  purposes  of  this  section,  namely,  to  render  available,  under 
the  direction  and  control  of  the  Secretary  of  the  Treasury,  as  a  basis  for  additional  circula- 
tion any  securities,  including  commercial  paper,  held  by  a  national  banking  association.  For 
the  purpose  of  obtaining  such  additional  circulation,  any  bank  belonging  to  any  national  cur- 
rency association,  having  circulating  notes  outstanding  secured  by  the  deposit  of  bonds  of  the 
United  States  to  an  amount  not  less  than  forty  per  centum  of  its  capital  stock,  and  which  has 
its  capital  unimpaired  and  a  surplus  of  not  less  than  twenty  per  centum,  may  deposit  with 
and  transfer  to  the  association,  in  trust  for  the  United  States,  for  the  purpose  hereinafter  pro- 
vided, such  of  the  securities  above  mentioned  as  may  be  satisfactory  to  the  board  of  the 
association.  The  officers  of  the  association  may  thereupon,  in  behalf  of  such  bank,  make  appli- 
cation to  the  Comptroller  of  the  Currency  for  an  issue  of  additional  circulating  notes  to  an 
amount  not  exceeding  seventy-five  per  centum  of  the  cash  value  of  the  securities  of  commercial 
paper  so  deposited.  The  Comptroller  of  the  Currency  shall  immediately  transmit  such  applica- 
tion to  the  Secretary  of  the  Treasury  with  such  recommendation  as  he  thinks  proper,  and  if, 
in  the  judgment  of  the  Secretary  of  the  Treasury,  business  conditions  in  the  locality  demand 
additional  circulation,  and  if  he  be  satisfied  with  the  character  and  value  of  the  "securities 
proposed  and  that  a  lien  in  favor  of  the  United  States  on  the  securities  so  deposited  and  on 
the  assets  of  the  banks  composing  the  association  will  be  amply  sufficient  for  the  protection 
of  the  United  States,  he  may  direct  an  issue  of  additional  circulating  notes  to  the  association, 
on  behalf  of  such  bank,  to  an  amount  in  his  discretion,  not,  however,  exceeding  seventy-five 
per  centum  of  the  cash  value  of  the  securities  so  deposited  :  Provided,  That  upon  the  deposit 
of  any  of  the  State,  city,  town,  county,  or  other  municipal  bonds,  of  a  character  described  in 
section  three  of  this  Act,  circulating  notes  may  be  issued  to  the  extent  of  not  exceeding  ninety 
per  centum  of  the  market  value  of  such  bonds  so  deposited :  And  provided  further,  That  no 
national  banking  association  shall  be  authorized  in  any  event  to  issue  circulating  notes  based 
on  commercial  paper  in  excess  of  thirty  per  centum  of  its  unimpaired  capital  and  surplus. 
The  term  "commercial  paper"  shall  be  held  to  include  only  notes  representing  actual  com- 
mercial transactions,  which  when  accepted  by  the  association  shall  bear  the  names  of  at  least 
two   responsible   parties  and   have   not  exceeding  four   months   to   run. 

The  banks  and  the  assets  of  all  banks  belonging  to  the  association  shall  be  jointly  and 
severally  liable  to  the  United  States  for  the  redemption  of  such  additional  circulation";  and 
to  secure  such  liability  the  lien  created  by  section  fifty-two  hundred  and  thirty  of  the  Revised 
Statutes  shall  extend  to  and  cover  the  assets  of  all  banks  belonging  to  the  association,  and  to 
the  securities  deposited  by  the  banks  with  the  association  pursuant  to  the  provisions  of  this 
Act:  but  as  between  the  several  banks  composing  such  association  each  bank  shall  be  liable 
only  in  the  proportion  that  its  capital  and  surplus  bears  to  the  aggregate  capital  and  surplus 
of  all  such  banks.  The  association  may,  at  any  time,  require  of  any  of  its  constituent  banks 
a  deposit  of  additional  securities  or  commercial  paper,  or  an  exchange  of  the  securities  already 
on  deposit,  to  secure  such  additional  circulation  ;  and  in  case  of  the  failure  of  such  bank  to 
make  such  deposit  or  exchange  the  association  may,  after  ten  days'  notice  to  the  bank,  sell 
the  securities  and  paper  already  in  its  hands  at  public  sale,  and  deposit  the  proceeds  with  the 
Treasurer  of  the  United  States  as  a  fund  for  the  redemption  of  such  additional  circulation.  If 
such  fund  be  insufficient  for  that  purpose  the  association  may  recover  from  the  bank  the 
amount  of  the  deficiency  by  suit  in  the  circuit  court  of  the  United  States,  and  shall  have  the 
benefit  of  the  lien  hereinbefore  provided  for  in  favor  of  the  United  States  upon  the  assets  of 
such  bank.  The  association  or  the  Secretary  of  the  Treasury  may  permit  or  require  the  with- 
drawal of  any  such  securities  or  commercial  paper  and  the  substitution  of  other  securities  or 
commercial  paper  of  equal  value  therefor. 


HISTORY  OF  BANKING  IN  ILLINOIS  631 

REDEMPTION     FUND     BELOW      REQUIREMENTS DUTY     OF     TREASURER     OF     UNITED     STATES 

Sec.  2.  That  whenever  any  bank  belonging  to  a  national  currency  association  shall  fail 
to  preserve  or  make  good  its  redemption  fund  in  the  Treasury  of  the  United  States,  required. 
by  section  three  of  the  Act  of  June  twentieth,  eighteen  hundred  and  seventy-four,  chaptrt 
three  hundred  and  forty-three  and  the  provisions  of  this  Act.  the  Treasurer  of  the  United 
States  shall  notify  such  national  currency  association  to  make  good  such  redemption  fund,  and 
upon  the  failure  of  such  national  currency  association  to  make  good  such  fund,  the  Treasurer 
of  the  United  States  may.  in  his  discretion,  apply  so  much  of  the  redemption  fund  belonging 
to  the  other  banks  composing  such  national  currency  association  as  may  be  necessary  for 
that  purpose  :  and  such  national  currency  association  may,  after  five  days'  notice  to  such  bank, 
proceed  to  sell  at  public  sale  the  securities  deposited  by  such  bank  with  the  association  pur- 
suant to  the  provisions  of  section  one  of  this  Act,  and  deposit  the  proceeds  with  the  Treasurer 
of  the  United  States  as  a  fund  for  the  redemption  of  the  additional  circulation  taken  out  by 
such  bank  under  this  act. 

WHAT    NATIONAL    BANKS     MAY     APPLY    FOR     AUTHORITY    TO    ISSUE    ADDITIONAL    CIRCULATION    ON    BONDS 

OTHER    THAN    UNITED   STATES    BONDS WHAT   BONDS    WILL    BE    ACCEPTED    FOR 

SUCH    ADDITIONAL     CIRCULATION 

Sec.  3.  That  any  national  banking  association  which  has  circulating  notes  outstanding, 
secured  by  the  deposit  of  United  States  bonds  to  an  amount  of  not  less  than  forty  per  centum 
of  its  capital  stock,  and  which  has  a  surplus  of  not  less  than  twenty  per  centum,  may  make 
application  to  the  Comptroller  of  the  Currency  for  authority  to  issue  additional  circulating 
notes  to  be  secured  by  the  deposit  of  bonds  other  than  bonds  of  the  United  States.  The  Comp- 
troller of  the  Currency  shall  transmit  immediately  the  application,  with  his  recommendation, 
to  the  Secretary  of  the  Treasury,  who  shall,  if  in  his  judgment  business  conditions  in  the 
locality  demand  additional  circulation,  approve  the  same  and  shall  determine  the  time  of  issue 
and  fix  the  amount,  within  the  limitations  herein  imposed,  of  the  additional  circulating  notes 
to  be  issued.  Whenever  after  receiving  notice  of  such  approval  any  such  association  shall 
deposit  with  the  Treasurer  or  any  assistant  treasurer  of  the  United  States  such  of  the  bonds 
described  in  this  section  as  shall  be  approved  in  character  and  amount  by  the  Treasurer  of 
the  United  States  and  the  Secretary  of  the  Treasury,  it  shall  be  entitled  to  receive,  upon  the 
order  of  the  Comptroller  of  the  Currency,  circulating  notes  in  blank,  registered  and  counter- 
signed as  provided  by  law.  not  exceeding  in  amount  ninety  per  centum  of  the  market  value, 
but  not  in  excess  of  the  par  value  of  any  bonds  so  deposited,  such  market  value  to  be  ascer- 
tained and  determined  under  the  direction   of  the  Secretary  of  the  Treasury. 

The  Treasurer  of  the  United  States,  with  the  approval  of  the  Secretary  of  the  Treasury, 
shall  accept  as  security  for  the  additional  circulating  notes  provided  for  in  this  section,  bonds 
or  other  interest-bearing  obligations  of  any  State  of  the  United  States,  or  any  legally  au- 
thorized bonds  issued  by  any  city,  town,  county,  or  other  legally  constituted  municipality  or 
district  in  the  United  States,  which  has  been  in  existence  for  a  period  of  ten  years,  and  which 
for  a  period  of  ten  years  previous  to  such  deposit  has  not  defaulted  in  the  payment  of  any 
part  of  either  principal  or  interest  of  any  funded  debt  authorized  to  be  contracted  by  it,  and 
whose  net  funded  indebtedness  does  not  exceed  ten  per  centum  of  the  valuation  of  its  taxable 
property,  to  be  ascertained  by  the  last  preceding  valuation  of  property  for  the  assessment  of 
taxes.  The  Treasurer  of  the  United  States,  with  the  approval  of  the  Secretary  of  the  Treasury, 
shall  accept,  for  the  purpose  of  this  section,  securities  herein  enumerated  in  such  proportions 
as  he  may  from  time  to  time  determine,  and  he  may  with  such  approval  at  any  time  require 
the  deposit  of  additional  securities,  or  require  any  association  to  change  the  character  of  the 
securities  already  on  deposit. 

LEGAL    TITLE    OF    BONDS     DEPOSITED    TO    SECURE    ADDITIONAL    CIRCULATION ASSIGNMENT    OF    BONDS     BY 

TREASURER    TO    BE    COUNTERSIGNED    BY    THE    COMPTROLLER    OF    THE    CURRENCY 

Sec.  4.  That  the  legal  title  of  all  bonds,  whether  coupon  or  registered,  deposited  to  secure 
circulating  notes  issued  in  accordance  with  the  terms  of  section  three  of  this  Act  shall  be 
transferred  to  the  Treasurer  of  the  United  States  in  trust  for  the  association  depositing  them, 
under  regulations  to  be  prescribed  by  the  Secretary  of  the  Treasury.  A  receipt  shall  be  given 
to  the  association  by  the  Treasurer  or  any  assistant  treasurer  of  the  United  States,  stating 
that  such  bond  is  held  in  trust  for  the  association  on  whose  behalf  the  transfer  is  made,  and 
as  security  for  the  redemption  and  payment  of  any  circulating  notes  that  have  been  or  may 
be  delivered  to  such  association.  No  assignment  or  transfer  of  any  such  bond  by  the  Treasurer 
shall  be  deemed  valid  unless  countersigned  by  the  Comptroller  of  the  Currency.  The  provi- 
sions of  sections  fifty-one  hundred  and  sixty-three,  fifty-one  hundred  and  sixty-four,  fifty-one 
hundred  and  sixty-five,  fifty-one  hundred  and  sixty-six.  and  fifty-one  hundred  and  sixty-seven, 
and  sections  fifty-two  hundred  and  twenty-four  to  fifty-two  hundred  and  thirty-four,  inclusive, 
of  the  Revised  Statutes  respecting  United  States  bonds  deposited  to  secure  circulating  notes 
shall,  except  as  herein  modified,  be  applicable  to  all  bonds  deposited  under  the  terms  of  section 
three  of  this  Act. 

ADDITIONAL    CIRCULATION.    HOW    TREATED LIMIT  TO    AMOUNT   OF    CIRCULATION    ISSUED    TO    EACH    BANK 

LIMIT    TO    TOTAL    AMOUNT    OUTSTANDING    UNDER    THIS    ACT 

Sec.  5.  That  the  additional  circulating  notes  issued  under  this  Act  shall  be  used,  held, 
and  treated  in  the  same  way  as  circulating  notes  of  national  banking  associations  heretofore 
issued  and  secured  by  a  deposit  of  United  States  bonds,  and  shall  be  subject  to  all  the  provi- 
sions of  law  affecting  such  notes  except  as  herein  expressly  modified:  Provided,  That  the 
total  amount  of  circulating  notes  outstanding  of  any  national  banking  association,  including 
notes  secured  by  United  States  bonds  as  now  provided  by  law,  and  notes  secured  otherwise 
than  by  deposit  of  such  bonds,  shall  not  at  any  time  exceed  the  amount  of  its  unimpaired 
capital  and  surplus ;  And  provided  further.  That  there  shall  not  be  outstanding  at  any  time 
circulating  notes  issued  under  the  provisions  of  this  Act  to  an  amount  of  more  than  five  hun- 
dred  millions  of  dollara 

AMOUNT    OF    REDEMPTION    FUND 

Sec.  6.  That  whenever  and  so  long  as  any  national  banking  association  has  outstanding 
any  of  the  additional  circulating  notes  authorized  to  be  issued  by  the  provisions  of  this  Act 
it  shall  keep  on  deposit  in  the  Treasury  of  the  United  States  in  addition  to  the  redemption 
fund  required  by  section  three  of  the  Act  of  June  twentieth,  eighteen  hundred  and  seventy- 
four,   an   additional   sum   equal   to   five  per   centum   of  such   additional   circulation   at  any   time 


632  FINANCING  AN  EMPIRE 

outstanding,  such  additional  five  per  centum  to  be  treated,  held  and  used  in  all  respects  in 
the  same  manner  as  the  original  redemption  fund  provided  for  by  said  section  three  of  the 
Act   of  June    twentieth,    eighteen    hundred    and   seventy-four. 

EQUITAnLE    DISTRIBUTION    OF    NOTES 

Sec.  7.  In  order  that  the  distribution  of  notes  to  he  issued  under  the  provisions  of  this 
Act  shall  he  made  as  equitable  as  practicable  between  the  various  sections  of  the  country, 
the  Secretary  of  the  Treasury  shall  not  approve  applications  from  associations  in  any  State 
in  excess  of  the  amount  to  which  such  State  would  be  entitled  of  the  additional  notes  herein 
authorized  on  the  basis  of  the  proportion  which  the  unimpaired  capital  and  surplus  of  the 
national  banking  associations  of  such  State  bears  to  the  total  amount  of  unimpaired  capital 
and  surplus  of  the  national  banking  associations  of  the  United  States:  Provided,  however, 
That  in  case  the  applications  from  associations  in  any  State  shall  not  be  equal  to  the  amount 
which  the  associations  of  such  State  would  lie  entitled  to  under  this  method  of  distribution, 
the  Secretary  of  the  Treasury  may,  in  his  discretion,  to  meet  an  emergency,  assign  the  amount 
not  thus  applied  for  to  any  applying  association  or  associations  in  States  in  the  same  section 
of   the   country. 

SECRETARY    OF    THE   TREASURY    TO    FURNISH    INFORMATION    AS    TO    THE    VALUE    AND    CHARACTER    OF 

SECURITIES 

Sec  8.  That  it  shall  be  the  duty  of  the  Secretary  of  the  Treasury  to  obtain  information 
with  reference  to  the  value  and  character  of  the  securities  authorized  to  be  accepted  under 
the  provisions  of  this  Act,  and  he  shall  from  time  to  time  furnish  information  to  national  bank- 
ing associations  as  to  such  securities  as  would  be  acceptable  under  the  provisions  of  this  Act. 

TAXES    PAYABLE    TO    THE    UNITED     STATES 

Sec.  9.  That  section  fifty-two  hundred  and  fourteen  of  the  Revised  Statutes,  as  amended, 
be   further  amended    to  read   as  follows: 

"Sec  5214.  National  banking  associations  having  on  deposit  bonds  of  the  United  States, 
bearing  interest  at  the  rate  of  two  per  centum  per  annum,  including  the  bonds  issued  for  the 
construction  of  the  Panama  Canal,  under  the  provisions  of  section  eight  of  'An  Act  to  provide 
for  the  construction  of  a  canal  connecting  the  waters  of  the  Atlantic  and  Pacific  Oceans,'  ap- 
proved June  twenty-eighth,  nineteen  hundred  and  two,  to  secure  its  circulating  notes,  shall  pay 
to  the  Treasurer  of  the  United  States,  in  the  months  of  January  and  July,  a.  tax  of  one-fourth 
of  one  per  centum  each  half  year  upon  the  average  amount  of  such  of  its  notes  in  circulation 
as  are  based  upon  the  deposit  of  such  bonds;  and  such  associations  having  on  deposit  bonds 
of  the  United  States  bearing  interest  at  a  rate  higher  than  two  per  centum  per  annum  shall 
pay  a  tax  of  one-half  of  one  per  centum  each  half  year  upon  the  average  amount  of  such  of 
its  notes  in  circulation  as  are  based  upon  the  deposit  of  such  bonds.  [National  banking  asso- 
ciations having  circulating  notes  secured  otherwise  than  by  bonds  of  the  United  States  shall 
pay  for  the  first  month  a  tax  at  the  rate  of  five  per  centum  per  annum  upon  the  average 
amount  of  such  of  their  notes  in  circulation  as  are  based  upon  the  deposit  of  such  securities, 
and  afterwards  an  additional  tax  of  one  per  centum  per  annum  for  each  month  until  a  tax  of 
ten  per  centum  per  annum  is  reached,  and  thereafter  such  tax  of  ten  per  centum  per  annum 
upon  the  average  amount  of  such  notes. 1  •  Every  national  hanking  association  having  out- 
standing circulating  notes  secured  by  a  deposit  of  other  securities  than  United  States  bonds 
shall  make  monthly  returns,  under  oath  of  its  president  or  cashier,  to  the  Treasurer  of  the 
United  States,  in  such  form  as  the  Treasurer  may  prescribe,  of  the  average  monthly  amount 
of  its  notes  so  secured  in  circulation;  and  it  shall  be  the  duty  of  the  Comptroller  of  the  Cur- 
rency to  cause  such  reports  of  notes  in  circulation  to  lie  verified  by  examination  of  the  banks' 
records.  The  taxes  received  on  circulating  notes  secured  otherwise  than  by  bonds  of  the 
United  States  shall  be  paid  into  the  Division  of  Redemption  of  the  Treasury  and  credited  and 
added  to   the  reserve  fund   held   for  the   redemption   of   United   States   and   other   notes." 

WITHDRAWAL  OK   CIRCU  LATINO    NOTES    ON    DEPOSIT  OF   LAWFUL    MONEY,    AND    WITHDRAWAL   OF   BONDS 

NOT     MORE    THAN     NINE     MILLION'S     To     HE     DEPOSITED     DURING     ANY     CALENDAR     MONTH 

WITHDRAWAL    OF    ADDITIONAL    CIRCULATION     ON     DEPOSIT    OF    LAWFUL 
MONEY     OK     NATIONAL     BANK     NOTES 

Sec.  10.  That  sect  inn  nine  of  the  Act  approved  July  twelfth,  eighteen  hundred  and  eighty- 
two,  as  amended  by  the  Act  approved  March  fourth,  nineteen  hundred  and  seven,  be  further- 
amended    to  read  as  follows: 

"Sec.  !».  That  any  national  banking  association  desiring  to  withdraw  its  circulating  notes, 
secured  by  deposit  of  United  States  bonds 'in  the  manner  provided  in  Section  four  of  the  Ait 
approved  June  twentieth,  eighteen  hundred  and  seventy-four  is  hereby  authorized  for  that 
purpose  to  deposit  lawful  money  with  the  Treasurer  of  the  United  States  and,  with  the  consent 
of  the  Comptroller  of  the  Currency  and  the  approval  of  the  Secretary  of  the  Treasury,  to 
withdraw  a  proportionate  amount  of  bonds  held  as  security  for  its  circulating  notes  in  the 
order  of  such  deposits:  Provided,  That  not  more  than  nine  millions  of  dollars  of  lawful  monej 
shall  be  so  deposited  during  any  calendar  month  for  this  purpose. 

"Any  national  banking  association  desiring  to  withdraw  any  of  its  circulating  notes,  se- 
cured by  the  deposit  of  securities  other  than  bonds  of  the  United  States,  may  make  such  with- 
drawal at  any  time  in  like  manner  and  effect  by  the  deposit  of  lawful  money,  or  national 
bank  notes  with  the  Treasurer  of  the  United  States,  and  upon  such  deposit  a  proportionate 
share  of  the  securities  so  deposited  may  be  withdrawn:  Provided,  That  the  deposits  under 
this  section  to  retire  notes  secured  by  the  deposit  of  securities  other  than  bonds  of  the  United 
States  shall  not  be  covered  into  the  Treasury,  as  required  by  section  six  of  an  Act  entitled 
'An  Act  directing  the  purchase  of  silver  bullion  and  the  issue  of  Treasury  notes  thereon,  and 
for  other  purposes,'  approved  July  fourteenth,  eighteen  hundred  and  ninety,  but  shall  be  retained 
in    the  Treasury    for    the   purpose  of   redeeming    the   notes  of   the   bank   making  such    deposit." 


"■Amended  bv  the  Federal   Reserve  Act.  Sec.  'J7.  to  read: 

National  banking  associations  having  circulating  notes  secured  otherwise  than  b\i  bonds  of 
the  United  Stairs,  shall  pay  for  the  first  three  months  a  tar  at  the  rate  of  three  per  centum  per 
annum  upon  the  average  amount  of  such  of  their  notes  iu  circulation  as  are  based  upon  the 
deposit  of  such  securities,  and  afterwards  an  additional  tax  rati-  of  one-half  of  one  per  centum 
per  annum  for  each  month  until  a  tar  of  sir  per  centum  per  annum  is  reached,  and  thereaftu 
such  a   tax   of  si.r  per  centum    pi  r  annum    upon    the   average  amount   of  such    notes. 


HISTORY  OF  BANKING  IN  ILLINOIS  633 

PRINTING,    DENOMINATION,    AND    FORM     OF    THE    CIRCULATING     NOTES 

Sec.  11.  That  section  fifty-one  hundred  and  seventy-two  of  the  Revised  Statutes  be,  and 
the  same   is  hereby,   amended  to  read   as  follows: 

"Sec.  5172.  In  order  to  furnish  suitable  notes  for  circulation,  the  Comptroller  of  the 
Currency  shall,  under  the  direction  of  the  Secretary  of  the  Treasury,  cause  plates  and  dies  to 
be  engraved,  in  the  best  manner  to  gaiard  against  counterfeiting  and  fraudulent  alterations, 
and  shall  have  printed  therefrom,  and  numbered,  such  quantity  of  circulating  notes,  in  blank, 
of  the  denominations  of  five  dollars,  ten  dollars,  twenty  dollars,  fifty  dollars,  one  hundred 
dollars,  five  hundred  dollars,  one  thousand  dollars,  and  ten  thousand  dollars,  as  may  be  required 
to  supply  the  associations  entitled  to  receive  the  same.  Such  notes  shall  state  upon  their  face 
that  they  are  secured  by  United  States  bonds  or  other  securities,  certified  by  the  written  or 
engraved  signatures  of  the  Treasurer  and  Register  and  by  the  imprint  of  the  seal  of  the 
Treasury.  They  shall  also  express  upon  their  face  the  promise  of  the  association  receiving 
the  same  to  pay  on  demand,  attested  by  the  signature  of  the  president  or  vice-president  and 
cashier.  The  Comptroller  of  the  Currency,  acting  under  the  direction  of  the  Secretary  of  the 
Treasury,  shall  as  soon  as  practicable  cause  to  be  prepared  circulating  notes  in  blank,  reg- 
istered and  countersigned,  as  provided  by  law,  to  an  amount  equal  to  fifty  per  centum  of  the 
capital  stock  of  each  national  banking  association  ;  such  notes  to  be  deposited  in  the  Treasury 
or  in  the  sub-treasury  of  the  United  States  nearest  the  place  of  business  of  each  association, 
and  to  be  held  for  such  association,  subject  to  the  order  of  the  Comptroller  of  the  Currency, 
for  their  delivery  as  provided  by  law:  Provided,  That  the  Comptroller  of  the  Currency  may 
issue  national  bank  notes  of  the  present  form  until  plates  can  be  prepared  and  circulating 
notes  issued  as  above  provided  ;  Provided,  however,  That  in  no  event  shall  bank  notes  of  the 
present  form  be  issued  to  any  bank  as  additional  circulation   provided   for   by   this  Act." 

CIRCULATING    NOTES    TO    BE    REDEEMED    IN    LAWFUL    MONEY    OF    THE    UNITED    STATES 

Sec.  12.  That  circulating  notes  of  national  banking  associations,  when  presented  to  the 
Treasury  for  redemption,  as  provided  in  section  three  of  the  Act  approved  June  twentieth, 
eighteen  hundred  and  seventy-four,  shall  be  redeemed  in  lawful  money  of  the  United   States. 

ALL    ACTS    OF    THE    COMPTROLLER    OF    THE    CURRENCY    AND    TREASURER    OF    THE    UNITED    STATES    UNDER 
THIS    ACT   TO    BE    APPROVED    BY    THE    SECRETARY    OF    THE    TREASURY 

Sec.  13.  That  all  acts  and  orders  of  the  Comptroller  of  the  Currency  and  the  Treasurer 
of  the  United  States  authorized  by  this  Act  shall  have  the  approval  of  the  Secretary  of  the 
Treasury  who  shall  have  power,  also,  to  make  any  such  rules  and  regulations  and  exercise 
such  control  over  the  organization  and  management  of  national  currency  associations  as  may 
be  necessary  to   carry   out   the  purposes  of  this  Act. 

NO    RESERVE     NEED    BE     HELD     AGAINST    DEPOSITS     OF     PUBLIC     MONEY 

Sec  14.  That  the  provisions  of  section  fifty-one  hundred  and  ninety-one  of  the  Revised 
Statutes,  with  reference  to  the  reserves  of  national  banking  associations,  shall  not  apply  to 
deposits   of  public  moneys  by   the   United   States  in   designated   depositaries. 

INTEREST    ON     PUBLIC    DEPOSITS 

Sec.  15.  That  all  national  banking  associations  designated  as  regular  depositaries  of 
public  money  shall  pay  upon  all  special  and  additional  deposits  made  by  the  Secretary  of  the 
Treasury  in  such  depositaries,  and  all  such  associations  designated  as  temporary  depositaries 
of  public  money  shall  pay  upon  all  sums  of  public  money  deposited  in  such  associations  inter- 
est at  such  rate  as  the  Secretary  of  the  Treasury  may  prescribe,  not  less,  however,  than  one 
per  centum  per  annum  upon  the  average  monthly  amount  of  such  deposits:  Provided,  however, 
That  nothing  contained  in  this  Act  shall  be  construed  to  change  or  modify  the  obligation  of 
any  association  or  any  of  its  officers  for  the  safe-keeping  of  public  money:  Provided  further. 
That  the  rate  of  interest  charged  upon  such  deposits  shall  be  equal  and  uniform  throughout 
the   United  States. 

EXPENSES    OF    ACT 

Sec.  16.  That  a  sum  sufficient  to  carry  out  the  purposes  of  the  preceding  sections  of  this 
Act  is  hereby  appropriated  out  of  any  money  in  the  Treasury  not  otherwise  appropriated. 

[Sections  17,   IS  and  19.   following,   were   repealed  by  Chapter  36.   Statutes  at  Large,   1911.] 

[Sec  17.  That  a  Commission  is  hereby  created  to  be  called  the  "National  Monetary  Com- 
mission," to  be  composed  of  nine  members  of  the  Senate,  to  be  appointed  by  the  Presiding 
Officer  thereof,  and  nine  members  of  the  House  of  Representatives,  to  be  appointed  by  the 
Speaker  thereof:  and  any  vacancy  on  the  Commission  shall  be  filled  in  the  same  manner  as  the 
original   appointment. 

Sec  IS.  That  it  shall  be  the  duty  of  this  Commission  to  inquire  into  and  report  to  Con- 
gress at  the  earliest  date  practicable,  what  changes  are  necessary  or  desirable  in  the  monetary 
system  of  the  United  States  or  in  the  laws  relating  to  banking  and  currency,  and  for  this  pur- 
pose they  are  authorized  to  sit  during  the  sessions  or  recess  of  Congress,  at  such  times  and 
places  as  they  may  deem  desirable,  to  send  for  persons  and  papers,  to  administer  oaths,  to 
summons  and  compel  the  attendance  of  witnesses,  and  to  employ  a  disbursing  officer  and  such 
secretaries,  experts,  stenographers,  messengers,  and  other  assistants  as  shall  be  necessary  to 
carry  out  the  purposes  for  which  said  Commission  was  created.  The  Commission  shall  have 
the  power  through  subcommittee  or  otherwise,  to  examine  witnesses  and  to  make  such  investi- 
gations and  examinations,  in  this  or  other  countries,  of  the  subjects  committed  to  their  charge 
as  they  shall  deem  necessary. 

Sec  19.  That  a  sum  sufficient  to  carry  out  the  purposes  of  sections  seventeen  and  eighteen 
of  this  Act,  and  to  pay  the  necessary  expenses  of  the  Commission,  and  its  members,  is  hereby 
appropriated,  out  of  any  money  in  the  Treasury  not  otherwise  appropriated.  Said  appropria- 
tions shall  be  immediately  available  and  shall  be  paid  out  on  the  audit  and  order  of  the  chair- 
man or  acting  chairman  of  said  Commission,  which  audit  and  order  shall  be  conclusive  and 
binding  upon  all  Departments  as  to  the  correctness  of  the  accounts  of  such   Commission.] 

(The  following   paragraph  was  added   bv  Act   of  March    4.   1909.) 

That  the  members  of  the  National  Monetary  Commission,  who  were  appointed  on  the 
thirtieth  day  of  May,  nineteen  hundred  and  eight,  under  the  provisions  of  section  seventeen 
of  the  Act  entitled  "An  Act  to  amend  the  national  banking  laws."  approved  May  thirtieth, 
nineteen    hundred   and   eight,    shall    continue    to    constitute    the    National    Monetary    Commission 


634 


FINANCING  AN  EMPIRE 


until  the  filial  report  of  said  commission  shall  be  made  to  Congress;  and  said  National 
Monetary  Commission  are  authorized  to  pay  to  such  of  its  members  as  are  not  at  the  time  in  the 
public  service  and  receiving  a  salary  from  the  Government,  a  salary  equal  to  that  to  which 
said  members  would  he  entitled  if  they  were  members  of  the  Senate  or  House  of  Represen- 
tatives. [All  Acts  and  parts  of  Acts  inconsistent  with  this  provision  are  hereby  repealed.] 
Sec.  20.  That  this  Act  shall  expire  by  limitation  on  the  thirtieth  day  of  June,  nim 
hundred  and  fourteen.      [Extended   by  Federal  Reserve  Act  to  June  30,   1915.] 


CLEARINGS    IN    CHICAGO    BY    YEARS    FROM    1SG5    TO    1922 


1865  (!)  months) $  309,606.228.52 

1866 453.798,648.11 

1867 580,727,331.43 

1868 723,293,444.91 

1869 734,661,949.91 

1870  810,676,036.28 

1871   868,936,754.64 

1872 993,060.503.47 

1873 1,047,027,828.33 

1874 1,101,347,918.41 

1875 1,212,817.207.54 

1876 1.110,093,624.37 

1877 1,044,678,475.70 

1878 967,184,093.07 

1879 1.257,756,124.31 

1880 1,725,684,894.83 

1SS1 2,249,329,924.75 

1882 2,393,437,874.35 

1883 2,517,371,581.24 

1884 2,259,680,391.74 

1885 2,318,579.003.07 

1886 2,604,762,912.35 

1887 2,969,216,210.60 

1888 3,163,774,462.68 

1889 3,379,925,188.67 

1890 4,093,145,904.48 

1S91 4,4  56,885,230.49 

1892 5,135.771,187.74 

1893 4,676,960,968.04 

1894 4,315,440,476.96 

1895 4,614,979,203.18 


1896 $  4, 413. 054. 108. 61 

1897 4,575.693,3 

1898 5.517.335.476.66 

1899 6,612,313,611.00 

1900 6.799,535,598.00 

1901 7,756,372,455.00 

1902 8.394,872,351.011 

1903 S.  7  55. 553. 649. 00 

1904 S.989.983.764.O0 

1905 10,141,765.732.00 

1906 11.047,311,894.00 

1907 12.087.647.S7o.imi 

1908 ll.s:,:;.  si  -1.945. 00 

1909 13,781,843,612.00 

1910 13,939,689,984.43 

1911 13. 925. 709. sm'. Tii 

1912 15,380,795,541.82 

1913 16,073,130,52  1.05 

1914 15,692,828,996.91 

1915 16,198,985.174  ,s2 

1916 20,541,943,205.9  I 

1917 24,974,974,478.64 

1918 25,930,200,367.73 

1919 29,685,973,091.51 

1920 32. 669. 233. 53:,. 72 

1921 25.974,692,057.45 

1922 28.036,204.344.67 

1923 31. 112,  S45, 762. 11 

1924 31,653,583,955.00 

1925 35,391,593,571.56 


BANK  CLEARINGS  IN  EIGHT  NEXT  MOST   IMPORTANT   CITIES  OF   ILLINOIS 

(000   omitted) 


Year  Peoria 

1909 $145 

1910 156 

1911 161 

1912 173 

1913 162 

1914 171 

1915 155 

1916 205 

1917 252 

1918 240 

1919 260 

1920 281, 

1921 191, 

1922 204, 

1923 229 

1924 237, 

1925 240, 

Year  Quincy 

1  909 

1910 30 

191  1 34 

1912 35 

1913 42 

1914 43 

1915 40 

1916 56 

1917    59, 

1918 70, 

1919 83 

1920 97, 

1921 66, 

1922 67, 

1923 74, 

1924 7  4, 

1925 


,848 
462 
238 
022 
337 
022 
071 
262 
310 
52S 
440 
528 
251 
124 
195 
563 
174 


,sss 
428 
,082 
93  6 
016 
856 
476 
701 
120 
4  98 
543 
023 
866 
407 
333 
626 


Springfield 

$    46.093 

51,929 

53,861 

58,749 

58,607 

59,288 

59.089 

77,797 

97,904 

112,799 

123.491 

146,815 

124,002 

115,865 

131,189 

130, 59S 

145,538 

Decatur 

$  21.553 
21.627 
22,900 
25.276 
27,148 
24.920 
22.324 
34.946 
43.592 
54,930 
6S.737 
80,324 
58.129 
58,245 
66.367 
71.551 
77,593 


Rockford 

$   33,824 

39.994 

40,747 

43.603 

50,197 

48,630 

47,425 

61,085 

S3. 187 

99,159 

110, 61S 

136.  S  17 

95,201 

101, 0SO 

US. 7(io 

129,300 

148,671 


Danville 


23.17  4 

21.728 
22.600 
24.621 
24.426 
25,579 
30.323 
30,328 
,31,925 
40,796 
17.9  43 
11.976 


Bloomington 
$  26,024 
30,963 
33,805 
35,780 
37.57  s 
35.97s 
37,072 
44,996 
59,891 
70,348 
88,387 

97.22  1 
66.S66 
67.407 
77.5  2  s 
75,860 
86,681 

Jacksonville 

$     1  1.429 

15,864 
L5.488 

14.2  11 
17.20.-, 
15.7  91 
1  1.206 
18,245 
21,859 
29,358 

3  4.120 

32,839 

17.653 

16,5 

18,678 

17,343 


HISTORY  OF  BANKING  IN  ILLINOIS 


635 


CHICAGO    CLEARING    HOUSE    ASSOCIATION— PRESIDENTS    AND    VICE-PRESIDENTS 

SINCE    ORGANIZATION 


Ei 

.ect: 

ED 

President 

Vice-President 

Mar. 

10 

,  1865 

W.  F.  Coolbaugh 

Josiah  Lombard 

Jan. 

7, 

1868 

Solomon  A    Smith 

J.  O.  Rutter 

Jan. 

3 

,  1871 

J    Irving  Pearce 

J.  O.  Rutter 

Jan. 

7, 

,  1873 

Solomon  A.  Smith 

L.  J.  Gage 

Jan. 

6, 

,  1874 

Solomon  A.  Smith 

L.  J.  Gage 

Jan. 

5, 

1875 

L.  J.  Gage 

John  DeKoven 

Jan. 

4, 

1876 

L.  J.  Gage 

John  DeKoven 

Jan. 

2, 

1877 

John  DeKoven 

I.  G.  Lombard 

Jan. 

3, 

1878 

John  DeKoven 

I.  G.  Lombard 

Jan. 

7. 

1S79 

I.  G.  Lombard 

Geo.  A.  Ives 

Jan. 

6. 

1>M) 

I.  G.  Lombard 

Geo.  A.  Ives 

Jan. 

4, 

1881 

Geo.  Schneider 

Geo.  L.  Otis 

Jan. 

1", 

1882 

Geo.  Schneider 

Geo.  L.  Otis 

Jan. 

16, 

1883 

Geo.  L.  Otis 

John  V.  Clarke 

Jan. 

15, 

1884 

Geo.  L.  Otis 

John  V.  Clarke 

Jan. 

20, 

1885 

John  V.  Clarke 

H.  H.  Nash 

Jan. 

19, 

1886 

John  V.  Clarke 

H.  H.  Xash 

Jan. 

18, 

1887 

H.  H.  Nash 

E.  G.  Keith 

Jan. 

17, 

1888 

H    H.  Nash 

E.  G.  Keith 

Jan. 

15, 

1889 

E.  G.  Keith 

John  C.  Black 

Jan. 

22, 

1890 

E.  G.  Keith 

John  C.  Black 

Jan. 

20, 

1891 

John  C.  Black 

C.  L.  Hutchinson 

Jan. 

18, 

1892 

John  C.  Black 

C.  L.  Hutchinson 

Jan. 

1", 

1893 

C.  L.  Hutchinson 

W.  F.  Dummer 

Jan. 

16, 

1894 

C.  L.  Hutchinson 

W.  F.  Dummer 

Jan. 

15, 

1895 

W.  F.  Dummer 

John  R.  Walsh 

Jan. 

21, 

1896 

W    F.  Dummer 

John  R.  Walsh 

Jan. 

19, 

1897 

John  R.  Walsh 

E.  S.  Lacey 

Jan. 

18, 

1898 

John  R.  Walsh 

E    S    Lacey 

Jan. 

17, 

1899 

E.  S.  Lacey 

J.  V.  Clarke 

Elected 


Jan. 

Jan. 

Jan. 

Jan. 

Jan. 

Jan. 

Jan. 

Jan. 

Jan. 

Jan. 

Oct. 

Jan. 

Sept. 

Jan. 

Jan. 

Jan. 

Jan. 

Jan. 

Jan. 

Jan. 

June 

Jan. 

Jan. 

Jan. 

Jan. 

Jan. 

Jan. 

Jan. 

Jan. 

Jan. 


16,  1900 

15,  1901 
21,  1902 

20,  1903 
19,  1904 

17,  1905 

16,  1906 

17,  1907 

21,  1908 

19,  1909 
28,  1909 

18,  1910 

14,  1910 

17,  1911 
16,  1912 
21,  1913 

20,  1914 

19,  1915 

18,  1916 

16,  1917 
12,  1917 

15,  1918 

21,  1919 

20,  1920 

18,  1921 

17,  1922 

16,  1923 
15,  1924 
20,  1925 

19,  1926 


President 

E.  S.  Lacev 
J.  V.  Clarke 
W.  T.  Fenton 
W.  T.  Fenton 
Byron  L.  Smith 
Byron  L.  Smith 
Byron  L.  Smith 
Byron  L.  Smith 
Jos.  T.  Talbert 
Jos.  T.  Talbert 
Geo.  E.  Roberts 
Geo.  E.  Roberts 
L.  A.  Goddard 
L.  A.  Goddard 
L.  A.  Goddard 

F.  H.  Rawson 
F.  H.  Rawson 
David  R.  Forgan 
David  R.  Forgan 
Chas.  G.  Dawes 
John  A.  Lynch 
John  A.  Lynch 
John  A.  Lynch 
Solomon  A.  Smith 
Solomon  A.  Smith 
Solonon  A.    Smith 
Oscar  G.  Foreman 
Oscar  G  Foreman 
Albert  W.  Harris 
Albert  W.  Harris 


Vice-Presidents 
J.  V.  Clarke 
W.  T.  Fenton 
Jas.  H.  Eckels 
Byron  L.  Smith 
Geo.  M.  Reynolds 
Geo.  M.  Reynolds 
Geo.  M.  Reynolds 
Geo.  M.  Reynolds 
H.  A.  Haugan 
H.  A.  Haugan 

L.  A.  Goddard 
F.  H.  Rawson 
F.  H.  Rawson 
F.  H.  Rawson 
David  R.  Forgan 
David  R.  Forgan 
Chas.  G.  Dawes 
Chas.  G.  Dawes 
John  A.  Lynch 
Solomon  A.  Smith 
Solomon  A.  Smith 
Solomon  A.  Smith 
Wm.  A.  Tilden 
Win.  A.  Tilden 
Oscar  G.  Foreman 
Albert  W.  Harris 
Albert  W.  Harris 
Jos.  E.  Otis 
Jos.  E.  Otis 


CHICAGO     CLEARING 


Elected 
Mar.    3,  1865 
Mar.  10,  1865 
Jan.      4,  1866 

2,  1867 
7,  1868 

5.  1869 

4,  1870 

3,  15.71 
7,  1873 

6.  1874 

5,  15.75 

4,  1876 

2,  1877 

3,  1878 

7.  1879 

6,  1880 

4,  1881 

17.  1»J 

16,  1883 
J-tn  15,  1884 
Jan.  2U.  ls\.-, 

19,  1886 

18.  1887 

17,  1888 

15,  1889 
22.  1890 

20,  1891 

19.  1892 

17,  1893 

16,  1894 

15,  1895 

21,  1896 
19,  1897 

2.  1897 

18,  1898 

17,  1899 

16,  1900 

15,  1901 
21,  1902 

3,  1902 
June  4,  1902 
Jan.  20,  1903 

19,  1904 

17,  1905 

16,  1906 
15,  1907 
13,  1907 
21,  1908 
19,  1909 

18,  1910 

17,  1911 


HOUSE     ASSOCIATION— CLEARING    HOUSE 
SINCE    ORGANIZATION 


Jan. 
Jan. 
Jan. 
Jan. 
Jan. 
Jan. 
Jan. 
Jan. 
Jan. 
Jan. 
Jan. 
Jan. 
Jan. 
Jan. 
Jan. 
Jan. 


Jan. 

Jan. 

Jan. 

Jan. 

Jan. 

Jan. 

Jan. 

Jan. 

Jan. 

Jan. 

Jan. 

Jan. 

Mar. 

Jan. 

Jan. 

Jan. 

Jan. 

Jan. 

Apr. 


Jan 
Jan. 
Jan. 
Jan. 
Aug 
Jan. 
Jan. 
Jan. 
Jan. 


L.  J.  Gage 
L.  J.  Gage 
E.  I.  Tinkham 
E    I.  Ti.ikham 
E.  I.  Tinkham 
E.  I.  Tinkham 
J.  M.  Adsit 
J.  M.  Adsit 
J.  M.  Adsit 
John  DeKoven 
Geo.  L.  Otis 
I.  G.  Lombard 
Orson  Smith 
Orson  Smith 
Orson  Smith 
John  DeKoven 
Jas.  D.  Sturges 
L.  J.  Gage 
L.  J.  Gage 
L.  J.  Gage 
Gage 
Gage 
Gage 
- .  Gage 
L.  J.  Gage 
I.  G.  Lombard 
I.  G  Lombard 
I.  G.  Lombard 
I.  G.  Lombard 
I.  G  Lombard 
I    G.  Lombard 
I.  G.  Lombard 
I.  G.  Lombard 


L.  J. 
L.  J. 
L.  J. 
L.J. 


John  DeKoven 
E.  E.  Braisted 
L.  J.  Gage 
L.  J.  Gage 
Josiah  Lombard 
John  DeKoven 
E.  I.  Tinkham 
E.  I.  Tinkham 
John  DeKoven 
Orson  Smith 
I.  G.  Lombard 
Geo.  L.  Otis 
Chas.  Henrotin 
Chas.  Henrotin 
J.  D.  Sturges 
Orson  Smith 
John  DeKoven 
Orson  Smith 
J.  J.  P.  Odell 
J.  J.  P.  Odell 
J.  J.  P.  Odell 
Orson  Smith 
Orson  Smith 
Orson  Smith 
Orson  Smith 
Orson  Smith 
Orson  Smith 
Orson  Smith 
Orson  Smith 
Orson  Smith 
Orson  Smith 
Orson  Smith 
Orson  Smith 


Ira  Holmes 
E.  I.  Tinkham 
A.  C.  Badger 
J.  O.  Rutter 
John  DeKoven 
J.  M.  Adsit 
L.  J.  Gage 
John  DeKoven 
M.  D.  Buchanan 
J.  M.  Adsit 
Orson  Smith 
Orson  Smith 
Geo.  A.  Ives 
Geo.  A.  Ives 
Geo.  L.  Otis 
L.  J.  Gage 
Orson  Smith 
I.  G.  Lombard 
I.  G.  Lombard 
I.  G.  Lombard 
I.  G.  Lombard 
J.  J.  P.  Odell 
J.  P.  Odell 
J.  P.  Odell 
J.  P.  Odell 
J.  P.  Odell 
J.  P.  Odell 
J.  P.  Odell 
J.  P.  Odell 
J.  P.  Odell 
E.  G.  Keith 
E.  G.  Keith 
E.  G  Keith 


E.  E.  Braisted 
Ira  Holmes 
J.  O.  Rutter 
J.  M.  Adsit 
C.  R.  Field 
L.  J.  Gage 
John  DeKoven 
L.  J.  Gage 
Geo.  A.  Ives 
I.  G  Lombard 
J.  M.  Adsit 
Geo.  A.  Ives 
Geo.  L.  Otis 
Geo.  L.  Otis 
L.  J.  Gage 
Geo.  L.  Otis 
L.  J.  Gage 
J.  J.  P.  Odell 
Jas.  D.  Sturges 
Orson  Smith 
Orson  Smith 
I.  G.  Lombard 
I.  G.  Lombard 
I.  G  Lombard 
I.  G.  Lombard 
L.  J.  Gage 
L.  J.  Gage 
L.  J.  Gage 
L.  J.  Gage 
L.  J.  Gage 
L.  J.  Gage 
L.  J.  Gage 
L.  J.  Gage 


No.  change  from  1911  to  1919. 


i        n    i? ,        '-'•o""  ouinu  cj.  <j.  iveitn  L   J    Gage 

Jas.  B.  Forgan  elected  to  fill  vacancy  caused  by  the  resignation  of  L.  J.  Gage 
I.G.Lombard  Orson  Smith  C.J.Blair  E   G    Keith 

I.  G.  Lombard  Orson  Smith  C.  J.  Blair  E.  G.  Keith 

I    G.  Lombard  Orson  Smith  C.  J.  Blair  E.  G    Keith 

Jas.  B.  Forgan  Orson  Smith  C.  J.  Blair  E.  G  Keith 

Jas.  B   Forgan  Orson  Smith  C.J.Blair  E   G    Keith 

l»,  h  '  p.i.  i  e  ♦eCied  ^nm  vacancy  caused  by  the  resignation  of  C.  J.  Blair 
T«  U  v  I  a  eleCt6A  t0  fiU-  vacanc>'  ca«sed  by  the  resignation  of  E.  G.  Keith 
Jal  R   Fnrf™  nrSO"  in,!t£  E   A   HamiU  John  J-  Mitchell 

if   1   Forgan  Orson  Smith  E.  A.  HamiU  John  J   Mitchell 

Jas.  B.  Forgan  Orson  Smith  E.  A.  Hamill  John  J   M  tche 

JasBFnr^n  °"°n  Smith  E.  A.  Hamill  John 

Jas.  B.  Forgan  Orson  Smith  E.  A.  Hamill  John  J    Mitchell 

Jas°  B    ForeIn°ldS  ^Tf  I?  fi"  ™»««y  «used  by  the  death  of  Ja!  H   Eckels. 
i3     5    £,orean  E   A.  Hamill  Orson  Smith  John  J    Mitchell 

Jas.  B.  Forgan  E    A.  Hamill  Orson  Smith  John  J    M  itchel 

Jas.  B.  Forgan  E    A.  Hamill  Orson  Smith  John  J    M  tche 

E   A    HamiU  Orson  Smith  John  J.  Mitchell 


COMMITTEES 


E.  I.  Tinkham 
John  DeKoven 
D.  J.  Lake 
D.  J.  Lake 
J.  M.  Adsit 
M.  D.  Buchanan 
M.  D.  Buchanan 
M.  D.  Buchanan 
Orson  Smith 
Geo.  A.  Ives 
Geo.  A.  Ives 
Chas.  Henrotin 
Jas.  D.  Sturges 
Jas.  D.  Sturges 
John  DeKoven 
J.  D.  Sturges 
John  J.  P.  Odell 
Jas.  D.  Sturges 
Orson  Smith 
C.  J.  Blair 
C.  J.  Blair 
C.  J.  Blair 
C.  J.  Blair 
C.  J.  Blair 
C.  J.  Blair 
C.  J.  Blair 
C.  J.  Blair 
C.  J.  Blair 
C.  J.  Blair 
C.  J.  Blair 
C.  J.  Blair 
C.  J.  Blair 
C.  J.  Blair 

Jas.  B.  Forgan 
Jas.  B.  Forgan 
Jas.  B.  Forgan 
E.  A.  Hamill 
E.  A.  Hamill 


Jas.  H.  Eckels 
Jas.  H.  Eckels 
Jas.  H.  Eckels 
Jas.  H.  Eckels 
Jas.  H.  Eckels 

Geo.  M.  Reynolds 
Geo.  M.  Reynolds 
Geo.  M.  Reynolds 
Geo.  M.  Reynolds 


636 


FINANCING  AN  EMPIRE 


Jan.  19, 

Jan.  21, 

Jan.  20, 

Jan.  18, 

Jan.  17, 

Jan.  16, 

June  13, 

Jan.  15, 

Jan.  20, 

Jan.  19, 


1915 
1919 
1920 
1921 
1922 
1923 
1923 
1924 
1925 
1926 


President  of  the  Association  made  mem 


Jas.  B.  Forgan 
Jas.  B.  Forgan 
Jas.  B.  Forgan 
Geo.  M.  Reynolds 
Geo.  M.  Reynolds 


E.  A.  HamiU 
Geo.  M.  Reynolds 
Geo.  M.  Reynolds 
E.  D.  Hulbert 
E.  D.  Hulbert 


John  J.  Mitchell  elected  to  fill  vacancy 
Geo.  M.  Reynolds     F.  O.  Wetmore 
Geo.  M.  Reynolds     F.  O.  Wetmore 
Geo.  M.  Reynolds     F.  O.  Wetmore 


ber  of  the  Cearing 
John  J.  Mitchell 
E.  D.  Hulbert 
E.  D.  Hulbert 
John  A.  Lynch 
John  A.  Lynch 

caused  by  death  of 
John  A.  Lynch 
John  A.  Lynch 
John  A.  Lynch 


House  Committee,  ex 
Geo.  M.  Reynolds 
John  A.  Lynch 
John  A.  Lynch 
F.  H.  Rawson 
F.  H.  Rawson 

Edmund  D.  Hulbert. 
John  J.  Mitchell 
John  J.  Mitchell 
John  J.  Mitchell 


officio. 

E.  D.  Hulbert 
Chas.  G.  Dawes 
Chas.  G.  Dawes 

F.  O.  Wetmore 
F.  O.  Wetmore 

F.  H.  Rawson 
F.  H.  Rawson 
F.  H.  Rawson 


INTERIOR  VIEW  OF  EARLY  CHICAGO  BANK  ENTRANCE  TO  SAFE 

DEPOSIT    VAULTS 


HISTORY  OF  BANKING  IX  LLMNOIS 


637 


1917 

February- 

1 

3 

March 

7 
31 

April 

2 

4 
6 

4  to  6 

May 


May- 


May 

to 

June 


CHRONOLOGY    OF    THE    FEDERAL    RESERVE    BANK    OF   CHICAGO 
FISCAL    AGENCY    OPERATIONS    l'.»17-1920 

Germany  begins  unrestricted  .submarine  warfare. 

Ambassador  Count  Von  Bernstorfi  given  passports  and  Ambassador  James  W.  Gerard  ordered 
withdrawn. 

United  States  Senate  endorses  Wilson's  action  in  breaking  with  Germany. 

Government  sells  (50,000,000  Certificates  of  Indebtedness  to  Federal  Reserve  Banks.     Chicago 
Reserve  Bank  took  $5,000,000.      Certificates  bearing  2'.,'   and  maturing  June  29,  1917. 
President  Wilson  at  Special  Session  of  American  Congress  asks  that  existence  of  state  of  war  with 
( iermany  be  declared. 
Senate  passes  War  resolutions. 
House  passes  War  resolution- 
Conference  of  Governors  of  Federal  Reserve  Ranks  held  at  Washington.  War  financing  discussed. 
Secretary  McAdoo  tells  Governors  he  would  further  employ  powers  given  him  in  Section  15 
Reserve  Act  and  expand  limited  Fiscal  Agency  functions  fir.st  assigned  Federal  Reserve  Hanks  on 
January  1,  1916. 

Act  of  Congress  (II.  It.  2762)  approved  authorizing  issue  of  bonds  not  in  excess  of  $i 5,000, 000, 000 
plus  163,945,460  necessary  to  redeem  maturing  bonds  and  certain  amounts  hitherto  authorized 
but  not  issued  under  prior  acts.      Short  title  First  Liberty  Bond  Act. 
Beginning  of  issue  of  Certificates  of  Indebtedness  anticipating  First  Liberty  Loan. 
.lane-  B.   McDougal,  Governor  Federal  Reserve  Bank  of  Chicago,  called  lirst  meeting  in  Chicago 
to  create  Liberty  Loan  organization  in  Chicago  district. 

I    -  ii   of  Treasury  Department  circular  No.  78  defining  terms  of  issue  of  First  Liberty  Loan  of 
1917:  $2,000,000,000  1.5-30  year  3' ..' ;  Gold  bonds  authorized.  This  circular  also  defined  the  re- 
lation of  Federal  Reserve  Banks  to  Dotation  of  loans  in  Fiscal  Agency  capacity. 
Issue  of  Treasury  Department  circular  No.  75)  covering  broad  regulations  regarding  redeposit  of 
Government  funds  arising  out  of  sale  of  Liberty  Bonds  and  Treasury  Certificates. 

tary  McAdoo  -poke  at  Chicago  to  bankers  and  represenlative  men  regarding  plans  for  flota- 
tion of  Loans. 


24— 

25— 

4  — 

14— 

16— 
17— 
14— 
1.5— 


F.r-t  Liberty  Loan  Campaign. 


CERTIFICATE    OF    INDEBTEDNESS    SALES 


Date 
Issue 

Due 
Date 

Per 
Cent 

Total 
1  ss   • 

Subscription 

Allot  n  ent 

No.  of 
Subscribers 

Cei'ifieates  issued  to  Federal 
Reserve  Banks  onlv 

Certificates  issued  in  antici- 
pation of  First  Liberty  Loan 

Mar.  31 

Apr.   25 
Mav   10 
May  25 

June  8 

June  29 

June  30 
Julv    17 
Julv   30 
July    3d 

2 

3 
3 

3', 

3N 

I  50,000,000 

268,205,000 
200,000,000 
200,000,000 
200,0 

|   .5.000,000 

lli.JlMl.lKHI 
24,893,000 

23,117.000 
23,21.5,00(1 

$  5,000,000 

16,400  000 
24,893,000 
16,600,000 
19,800,000 

§77,693,000 

1 

13.5 
291 
.503 
419 

Total .  .  . 

1868,205.000 

$87,625,000 

1,348 

FIRST    LIBERTY    LOAN    BOND    SALES 


Quota 

Subscriptions 

Percent 

quota, 

Subscribed 

Average 
Subscription 

Number  of 
Subscribers 

Allotments 

Wisconsin 

$  32,000,000 

135,000,000 
.5'),  (Kill  ,000 
45,000,000 

36.000.000 

$  30,296,650 
195,686,200 

61.47.5.1(H) 
30.740,600 
33.366,100 

96 

14.5 

123 

lis 

93 

$505.00 

700.00 
473.00 
512.00 
477.00 

60.000 
280,000 

130,000 
60,000 
70,000 

$  24,170,150 

Illinois 

1.57.3S6.SOO 

Michigan 

40,528,800 

23,522,850 

23,344,100 

Seventh  District 

$298,000,000 

§351,564,650 

lis 

$586.00 

600,000 

S26S,952,700 

August  9 — 

September  24 — 


Beginning  of  issue  of  Certificates  of  Indebtedness  in  anticipation  of  Second  Liberty   Loan  of  1917. 
'  Congress  (II.  R.  5901)  approved  authorizing  issue  of  $7,538,945,460  in  addition  to  $2,000,- 
000,000  issued  or  offered  under  Fir.-t   Liberty  Bond  Act  but   $3,538,945,460  was  in  lieu  of  pre- 
viously   authorized    issues.      Net    increased    authorization    $4,000,000,000.      Short    title    of    Act 


October 


24  — 
1  to  27— 


SECOND    LIBERTY    LOAN    BOND    ACT 

1  Jsue  of  Treasury  Department  circular  No.  90  inviting  subscriptions  to  $3,000,000,000  10-25  year 

1(  ;    convertible  gold  bonds. 

"  Libert  v  Day". 

Second  Liberty  Loan  Campaign 


638 


FINANCING  AN  EMPIRE 

CERTIFICATE   OF  INDEBTEDNESS    SALES 


Date 
Issue 


Due 
Date 


Call 
Date 


Per 

Cent 


Total    Issue 


Subscription 


Allotment 


No    of 
Sub. 


August  9. 

August         29 . 
September  17 
September  26 
October       18 
October       24 . 


Nov.  15 
Nov.  30 
Dec.  15 
Dec.  15 
Nov.  22 
Dec.   15 


Dec.     6 
Dec.   11 


3'A 

3>A 
4 
4 
4 


$300,000,000 
250,000,000 
300,000,000 
400,000,000 
385,197,000 
685,296,000 


18,870,000 
18,636,000 
21,169,000 
35,629,000 
32,963,000 
18,141,000 


$  15,600,000 
15.095,000 
21.169,000 
35,629,000 
32,963,000 
18,141,000 


381 
379 
595 
804 
745 
217 


Total . 


$2,320,493,000 


$145,408,000 


$138,597,000 


3121 


SECOND   LIBERTY    LOAN    BOND   SALES 


Quota 

Subscriptions 

Percent 

Quota 

Subscribed 

Average 
Subscrip- 
tions 

Number  of 
Subscribers 

Allotments 

Wisconsin 

Illinois 

$  50,400,000 

163,380,000 

74,550,000 

74,550,000 

57,120,000 

$  78,246,400 

248,514,000 

106,179,550 

83,047,400 

69,799,450 

155 
152 
142 
111 
122 

$320.00 
376.00 
271.00 
288.00 
311.00 

244,676 
661,105 
391,121 
288,080 
224,515 

$  73,313,100 
209,483,150 

Michigan. 

95,472,150 
79,650,400 

Indiana            

67,176,650 

Seventh  District 

$420,000,000 

$585,786,800 

139 

$324.00 

1,809,497 

$525,095,450 

1918 

January 
April 

22 

4— 

6— 

April 

to 

May 

6— 
4— 

Beginning  of  issue  of  Certificates  of  Indebtedness  anticipating  Third  Liberty  Loan. 

Act  of  Congress  (H.  R.   11123)  approved  authorizing  issue  of  $12,000,000,000  in  addition  to 

$2,000,000,000  issued  or  offered  under  First  Liberty  Bond  Act,  but  $3,538,945,460  was  in  lieu  of 

previously  authorized  issues.     Net  increased  authorization  $8,461,054,540.     Short  title  of  Act, 

Third  Liberty  Bond  Act. 

Issue  of  Treasury  Department  Circular  No.   Ill  inviting  subscription  to  $3,000,000,000  iM% 

Gold  Bonds  of  1928. 

Third  Liberty  Loan  Campaign. 


CERTIFICATE    OF    INDEBTEDNESS    SALES 


Date  of  Issue 

Total  Issue 

Allotted  to 
Chicago  District 

Rate  of 
Interest 

Date  of 
Maturity 

Sub- 
scribers 

Jan.   22,  1918 
Feb.     8,  1918 
Feb.  27,  1918 
Mar.  20,  1918 
Apr.   10,  1918 
Apr.  22.  1918 

Total 

$    400,000,000 
500,000,000 
500,000,000 
543,032,000 
551,226,500 
517,026,000 

$3,011,284,500 

$  30,359,000 
42,352,000 
59,168,000 
64,414,000 
65,850,000 
63,212,000 

$325,355,000 

4% 

4 

41.. 

4'a 

4'2 

4H 

Apr.  22,  1918 
May    9.  1918 
May  28,  1918 
June  18,  1918 
July     9,  1918 
Julv  18,  1918 

910 
2193 
2S56 
3115 
2662 
2056 

THIRD    LIBERTY    LOAN    BOND    SALES 


Quota 

Subscriptions 

Percent 

Quota 

Subscribed 

Average 
Subscription 

Number  of 
Subscribers 

Wisconsin 

Illinois 

$  45,600,000 

178,980,000 

75,600,000 

71,050,000 

53,770,000 

$  75,185,250 

247,626,400 

98,033,050 

117,211,450 

70,822,450 

167.287 

137 

130 

167.518 

133 

$172.00 
173.00 
170.00 
173.00 
174.00 

427,371 
1.417,241 

Michigan 

569,570 

Iowa 

660,942 

Indiana 

404,191 

Seventh  District 

$425,000,000 

$608,878,600 

143 

$172.00 

3.479,315 

June 
July 


25- 
9- 


September  28— 

September  28 — 

to 
October       19— 


Beginning  of  issue  of  Certificates  of  Indebtedness  anticipating  Fourth  Libert v  Loan. 

Act  of  Congress  (H.  R.   12580)  approved  authorizing  issue  of  $20,000,000,000  in  addition  to 

$2,000,000,000  issued  or  offered  under  First  Liberty  Bond  Act  but  $3, 538, 945,460  was  in  lii 

previously  authorized  issues.     Net  increased  authorization  $16,461,054,540.     Short  title  of  Ait, 

Fourth  Liberty  Bond  Act. 

Issue  of  Treasury  Department  circular  No.  121  inviting  subscriptions  to  $6,000,000,000  4 

Gold  Bonds  1933-38. 

Fourth  Liberty  Loan  Campaign. 


HISTORY  OF  BANKING  IN  ILLINOIS 

CERTIFICATE   OF   INDEBTEDNESS    SALES 


639 


Date  of  Is9ue 

Total  Issue 

Allotted  to 
Chicago  District 

Rate  of 
Interest 

Date  of 

Maturity 

Sub- 
scribers 

June  25.  1918 
July     9,  1918 
July  23,  1918 
Aug.     6,  1918 
Sept.    3.  1918 
Sept.  17,  1918 
Oct.      1,  1918 

$    838,553,500 
759,438,000 
584,750,500 
575,706.500 
639.493,000 
625,216,500 
641,069,000 

$131,481,500 
101,203,000 
83,310,500 
87,292,500 
88,279.000 
88.878,500 
82,759,000 

4H 
4J4 

4H 

VA 
4lA 

Oct.    24,  1918 
Nov.    7,  1918 
Nov.  21,  1918 
Dec.     5,  1918 
Jan.      2,  1919 
Jan.    16,  1919 
Jan.    30.  1919 

4084 
4258 
4240 
4187 
3904 
3858 
3641 

Total 

$4,664,227,000 

$663,204,000 

FOURTH    LIBERTY    LOAN   BOND   SALES 


Wiscosnin 

Illinois 

Michigan 

Iowa 

Indiana 

Seventh  District 


Quota 


$100,050,000 
365,400,000 
147,900,000 
147,900,000 
108,750,000 


Subscriptions 


$107,193,650 
422,994,650 
164,784,200 
158,155,400 
116,081,100 


Percent 

Quota 

Subscribed 


109 
114 
111 
110 
109 


Average 
Subscription 


$230.00 
480.00 
193.00 
252.00 
191.00 


Number  of 
Subscribers 


436,482 
1,866,064 
821,799 
587,773 
588.194 


$870,000,000 


$969,209,000 


111 


$227.00 


4,300,312 


December     5 — 

1919 

March  3— 


April 
April 
May 


21— 
21— 


10— 


Beginning  of  issue  of  Certificates  of  Indebtedness  in  anticipation  of  Victory  Liberty  Loan. 

Act  of  Congress  (H.  R.  16136)  approved  authorizing  issue  of  $7,000,000,000  notes  in  addition  to 
bonds,  Certificates  of  Indebtedness  and  war  savings  certificates  previously  authorized.     Short 
title  of  Act  "Victory  Liberty  Loan  Act."     Increased  authorization  $23,461,054,540. 
Issue   of   Department  circular   No.    138   inviting  subscriptions  to   $4,500,000,000   convertible 
(3  H7o  into  4  3A%  or  vice  versa)  Gold  Bonds,  1922-23. 

Victory  Liberty  Loan  Campaign. 


CERTIFICATE    OF    INDEBTEDNESS    SALES 


Date  of  Issue 

Total  Issue 

Allotted  to 
Chicago  District 

Rate  of 
Interest 

Date  of 

Maturity 

Sub- 
scribers 

Dec.     5,  1918 

$    613,438,000 

$  97,235,500 

4H 

May    6,  1919 

3795 

Dec.  19,  1918 

572,494,000 

83,189,500 

4H 

May  20,  1919 

3656 

Jan.      2.  1919 

751,684,500 

108,647,000 

4H 

June    3,  1919 

3542 

Jan.    16,  1919 

600,101,500 

97,774,500 

4H 

June  17,  1919 

3772 

Jan.   30.  1919 

687,381,500 

103,048,500 

4H 

July     1,  1919 

3595 

Feb.   13,  1919 

620,578,500 

91,677,500 

4H 

July  15,  1919 

3183 

Feb.  27.  1919 

532,341,500 

82,044,000 

4A 

July  29,  1919 

2732 

Mar.  13.  1919 

542,197,000 

82,656,500 

4H 

Aug.  12,  1919 

2544 

Apr.   10.  1919 

646.024.500 

99,886,000 

4H 

Sept.    9,  1919 

2926 

May     1,  1919 

591,308,000 
$6,157,549,000 

109,256,500 

4H 

Oct.     7,  1919 

2474 

Total 

$953,415,500 

VICTORY   LIBERTY   LOAN    BOND   SALES 


Quota 

Subscriptions 

Percent 

Quota 

Subscribed 

Average 
Subscription 

Number  of 
Subscribers 

Allotments 

Wisconsin 

Illinois 

Michigan 

$75,037,500 

274,050,000 

110.925,000 

110,925,000 

81,562,500 

$  93,183,950 

332,323.200 

149,444,500 

111,787,450 

85,307,450 

125 
120 
135 
103 
106 

$343.00 
305.00 
359.00 
313.00 
356.00 

271,338 
1,100,580 
359,378 
307,195 
228,920 

85,034,650 
297,809,800 
119  209  650 

110,552,250 
81,723,650 

Indiana 

Seventh  District 

$652,500,000 

$772,046,550 

119 

$340.00 

2,267,411 

694,330,000 

ILLINOIS'    CONTRIBUTION   TO   LIBERTY  LOAN   QUOTAS    FOR   THE   EIGHTH    FEDERAL 

RESERVE   DISTRICT 

Loan                                                                                                Quotas  Subscriptions  Allotments 

First    $12,586,450  $   7,732,000  $    5.667,650 

Second    14,438,500  22,119,150  21,406.550 

Third    18,158,050  31,633.600  31,633,600 

Fourth    40,927,000  44,296.550  44.296,550 

Victory    30,366,650  33,639,950  31,975,600 


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FINANCING  AN  EMPIRE 


LIST  OF  CERTIFICATES  OF  INDEBTEDNESS  SOLD 

In  the  following  table*  is  presented  a  complete  list  of  the  certificates  of  indebtedness  issued  from  March    1917  to 
September  30,  1922. 

CERTIFICATES  OF  INDEBTEDNESS 


Date  of  Issue 

Title 

Payable 

Interest  Rate 

Amount 

Mar.  31,  1917 

June  29,  1917 

2 

$  50,000,000 

Apr.   25,  1917 

June  30,  1917 

3 

268,205,000 

May  10,  1917 

July    17,  1917 

3 

200,000,000 

May  25,  1917 

July   30,  1917 

3M 

200,000,000 

June     8,  1917 

July   30,  1917 

3M 

200,000,000 

Aug.     9,  1917 

Nov.  15,  1917 

'sy2 

300,000,000 

Aug.  28,  1917 

Nov.  30,  1917 

3lA 

250,000,000 

Sept.  17,  1917 

Dec.   15,  1917 

3y2 

300,000,000 

Sept.  26,  1917 

Dec.   15,  1917 

4 

400,000,000 

Oct.    18,  1917 

Nov.  22,  1917 

4 

385,197,000 

Oct.    24,  1917 

Dec.   15,  1917 

4 

685,296,000 

Nov.  30,  1917 

June  25,  1918 

4 

691,872,000 

Jan.      2,  1918 

June  25,  1918 

4 

491,822,500 

Jan.    22,  1918 

Apr.   22,  1918 

4 

400,000,000 

Feb.     8,  1918 

May     9,  1918 

4 

500,000,000 

Feb.    15,  1918 

June  25,  1918 

4 

74,100,000 

Feb.   27,  1918 

May  28,  1918 

±A 

500,000,000 

Mar.  15,  1918 

June  25,  1918 

4 

110,962,000 

Mar.  20,  1918 

June  18,  1918 

±A 

543,032,500 

Apr.    10,  1918 

July     9,  1918 

4j/2 

551,226,500 

Apr.    15,  1918 

June  25,  1918 

4 

71,880,000 

Apr.   22,  1918 

July    18,  1918 

4^ 

517,826,500 

May  15,  1918 

June  25,  1918 

4 

183,767,000 

June  25,  1918 

Series  4-A 

Oct.    24,  1918 

4^ 

839,646,500 

July     9,  1918 

Series  4-B 

Nov.    7,  1918 

m 

753,938,000 

July   23,  1918 

Series  4-C 

Nov.  21,  1918 

4^ 

584,750,500 

Aug.     6,  1918 

Series  4-D 

Dec.     5,  1918 

±A 

575,706,500 

Aug.  20,  1918 

Series  T- 

July    15,  1919 

4 

157,552,500 

Sept.    3,  1918 

Series  -E 

Jan.      2,  1919 

4M 

639,493,000 

Sept.  17,  1918 

Series  4-F 

Jan.    16,  1919 

4^ 

625,216,500 

Oct.      1,  1918 

Series  4-G 

Jan.    30,  1919 

4>2 

641,069,000 

Nov.    7,  1918 

Series  T-l 

Mar.  15,  1919 

4^2 

794,172,500 

Dec.     5,  1918 

Series  5-A 

May     6,  1919 

4  M> 

613,438,000 

Dec.   19,  1918 

Series  5-B 

May  20,  1919 

4' 2 

572,494,000 

Jan.      2,  1919 

Series  5-C 

June     3,  1919 

±A 

751,684,500 

Jan.    16,  1919 

Series  5-D 

June  17,  1919 

m, 

600,101,500 

Jan.    16,  1919 

Series  T-2 

June  17,  1919 

±A 

392,381,000 

Jan.    30,  1919 

Series  5-E 

July      1,  1919 

4^2 

687,381,500 

Feb.    13,  1919 

Series  5-F 

July    15,  1919 

4H 

620,578,500 

Feb.  27,  1919 

Series  5-G 

July   29,  1919 

4^2 

532,381,500 

Mar.  13,  1919 

Series  5-H 

Aug.  12,  1919 

4^2 

542,197,000 

Mar.  15,  1919 

Series  T-3 

June  16,  1919 

4M 

407,918,500 

Apr.    10,  1919 

Series  5-J 

Sept.    9,  1919 

4H 

646,025,000 

May     1,  1919 

Series  5-K 

Oct.      7,  1919 

4H 

591,308,000 

June     3,  1919 

Series  T-4 

Sept.  15,  1919 

4H 

526,139,500 

June     3,  1919 

Series  T-5 

Dec.   15,  1919 

4^ 

238,711,500 

July      1,  1919 

Series  T-6 

Sept.  15,  1919 

4^ 

326,468,000 

July      1,  1919 

Scries  T-7 

Dec.   15,  1919 

4H 

511,444,000 

July    15,  1919 

Series  T-8 

Mar.  15,  1920 

4  '  2 

323,074,500 

Aug.     1,  1919 

Series  A-1920 

Jan.      2,  1920 

llA 

533,801,500 

Aug.   15,  1919 

Series  B-1920 

Jan.    15,  1920 

4H 

532,152,000 

Sept.    2,  1919 

Series  C-1920 

Feb.     2,  1920 

4H 

573,841,500 

Sept.  15,  1919 

Series  T-9 

Mar.  15,  1920 

4M 

101,131,500 

Sept.  15,  1919 

Series  T-10 

Sept.  15,  1920 

4^ 

657,469,000 

Dec.     1,  1919 

Series  D-1920 

Feb.    16,  1920 

4'4 

162,178,500 

Doc.      1,  1919 

Series  TM3-1920 

Mar.  15,  1920 

4H 

260,322,000 

Dec.   15,  1919 

Series  TJ-1920 

June  15,  1920 

*A 

728,130,000 

♦Annual  Report,  Secretary  of  thc-Trcasury,  1922,  pp.  476-8 


HISTORY  OF  BANKING  IN  ILLINOIS 

CERTIFICATES  OF  INDEBTEDNESS 


643 


Date  of  Issue 

Title 

Payable 

Interest  Rate 

Amount 

Jan.      2,  1920 

Series  TD-1920 

Dec-.   15,  1920 

m 

$703,026,000 

Feb.     2, 

1920 

Series  TM4-1920 

Mar.  15, 

|1920 

4H 

304,877,000 

Mar.  15, 

1920 

Series  TM-1921 

Mar.  15, 

1921 

W 

201,370,500 

Apr.      1, 

1920 

Series  E-1920 

July      1, 

1920 

4^ 

200,669,500 

Apr.    15, 

1920 

Series  F-1920 

July    15, 

1920 

5 

83,903,000 

Apr.   15, 

1920 

Series  G-1920 

Oct.    15 

1920 

5^ 

170,633,500 

May  17 

1920 

Series  H-1920 

Nov.  15, 

1920 

5V2 

102,865,000 

June  15 

1920 

Series  A-1921 

Jan.      3 

1921 

5% 

176,604,000 

June  15 

1920 

Series  TJ-1921 

June  15 

1921 

6 

242,517,000 

July    15 

1920 

Series  B-1921 

Jan.    15 

1921 

554 

126,783,500 

July    15 

1920 

Series  TM2-1921 

Mar.  15 

1921 

53A 

74,278,000 

Aug.   16 

1920 

SeriesC-1921 

Aug.   16 

1921 

6 

157,654,500 

Sept.  15 

1920 

Series  TM3-1921 

Mar.  15 

1921 

5H 

106,626,500 

Sept.  15 

1920 

Series  TS-1921 

Sept.  15 

1921 

6 

341,969,500 

Oct.    15 

1920 

Series  TM4-1921 

Mar.  15 

1921 

5% 

124,252,500 

Nov.  15 

1920 

Series  D-1921 

May  16 

1921 

h% 

232,124,000 

Dec.   15 

1920 

Series  TJ2-1921 

June  15 

1921 

Wx 

188,123,000 

Dec.  15 

1920 

Series  TD-1921 

Dec.   15 

1921 

6 

401,557,500 

Jan.    15 

1921 

Series.E-1921 

Apr.    15 

1921 

5V2 

118,660,000 

Jan.    15 

1921 

Series  F-1921 

Oct.    15 

1921 

5% 

192,026,500 

Feb.    15 

1921 

Series  G-1921 

July    15 

1921 

5V2 

132,886,500 

Mar.  15 

1921 

Series  TS-1921 

Sept.  15 

1921 

5V2 

193,302,000 

Mar.  15 

1921 

Series  TM2-1922 

Mar.  15 

1922 

5% 

288,501,000 

Apr.    15 

1921 

Series  H-1921 

Oct.    15 

1921 

5V2 

190,511,500 

May  16 

1921 

Series  A- 1922 

Feb.   16 

1922 

5V2 

256,170,000 

June  15 

,  1921 

Series  TJ-1922 

June  15 

1922 

hVi 

314,184,000 

Aug.     1 

1921 

Series  B-1922 

Aug.     1 

1922 

5H 

259,471,500 

Aug.     1 

1921 

Series  TM2-1922 

Mar.  15 

1922 

5M 

116,891,000 

Sept,  15 

1921 

Series  TM3-1922 

Mar.  15 

1922 

5 

124,572,000 

Sept.  15 

1921 

Series  TS-1922 

Sept.  15 

1922 

5M 

182,871,000 

Nov.     1 

,  1921 

Series  C-1922 

Apr.      1 

1922 

4M 

51,796,000 

Nov.     1 

1921 

Series  TS2-1922 

Sept.  15 

1922 

4H 

179,691,500 

Dec.  15 

,  1921 

Series  TJ2-1922 

June  15 

1922 

4H 

64,903,000 

Dec.  15 

,  1921 

Series  TD-1922 

Dec.   15 

1922 

4V2 

243,544,000 

Mar.  15 

,  1922 

Series  TM-1923 

Mar.  15 

1923 

VA 

266,250,000 

Apr.    15 

,  1922 

Series  D-1922 

Oct.    16 

1922 

W2 

150,000,000 

June     1 

,  1922 

Series  TD2-1922 

Dec.   15 

,  1922 

sy2 

200,000,000 

June  15 

,  1922 

Series  TJ-1923 

June  15 

1923 

3% 

273,000,000 

Sept.  15 

,  1922 

Series  TS-1923 

Sept.  15 

1923 

Wa 

227,000,000 

Vol.  I    -21 


644 


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BIBLIOGRAPHY 


Acceptance  Bulletin,  flies. 

Albach — Annals  of  the  West. 

Alvord,   Clarence  W. — The  Illinois  Country,    1673-1818.     Vol.    1,    Centennial   History   of   Illinois. 
Springfield,   1920. 

American  Academy    of    Political    Science.      Annals,    1922. 

American  Bankers'  Association,   Journal,   files. 

American  Bankers'  Magazine   and   Statistical   Register,    1860 — . 

American  Economic  Review,  files. 

American  Institute  of   Banking,   files  of   "The   Bank  Man."* 

Andreas,  A.  T. — History   of  Chicago.      3   vols.      Chicago,    1886. 

Andrew,   A.    Piatt — Substitutes  for   Cash   in   the   Panic  of    1907 — in   Quarterly   Journal   of   Eco- 
nomics,  August,    1908. 

Bankers'  Club  of  Chicago,   records. 

Bankers'  Magazine    (American),    1860    ff. 

Bankers'  Magazine,   New    York — Coin's   Financial   School   Answered.     N.   T.,    1895. 

Bankers'  Monthly,  files. 

Bankers'  Trust  Company,   Chicago — Our   Public  Debt. 

Barron,   C.   W. — The   Federal   Reserve   Act.      Boston,    1914. 

Baty,   E.   N. — The  Story  of  the   Outlying   Banks  of   Chicago.      Chicago,    1924. 
Barnett — State   Banking    in    the    United    States   Since   the   Passage   of   the   National    Bank    Act. 
Baltimore,  1902. 

Barrons,  files. 

Barrows,   H.   H. — Geography  of  the   Middle   Illinois  Valley. 

Bayley,   Rafael   A. — National   Loans   of   the   United   States  from  July   4,   1776,   to  June   30,    1880, 
Washington,    1881. 

Beckhart,  Benjamin  Haggott- — The  Discount  Policy  of  the  Federal  Reserve  System.     N.  Y.,  1924. 

Bogart  and   Mathews — The   Modern   Commonwealth,    1893. 

Bogart,   Ernest  L.   and   Charles  M.   Thompson — The   Industrial   State,    1870   to    1893.      Vol.    4    of 
the  Centennial   History   of   Illinois.      Springfield,    1920. 

Bogart  and  Thompson — Readings  in  the  Economic  History  of  the  United  States. 

Bolles,   Albert  S. — Financial   History   of  the   United   States,    1861   to    1885.      N.   Y.,    1886. 

Bourland,  O.   P. — Manuscript   of  a  lecture  delivered   on   the  last  fifty   years  of  banking   in   Illi- 
nois.    Pontiac,  Illinois,  1925. 

Breckenridge,  S.  P. — Legal  Tender.      Chicago,   1903. 

Bross,    William — History   of   Chicago.      Chicago,    1876. 

Burgess,  W.  R. — Series  of  articles  on  the  Federal  Reserve  System  in  the  Journal  of  the  Ameri- 
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Byllesby,  H.  M.,  and  Co. — Pamphlets  on  customer  ownership  and  public  utility  financing. 

Callahan — Annotated   Statutes. 

Cannon,   James  G. — Clearing  Houses.     N.   Y.,    1900. 

Cargill,  J.  F. — A  Freak  in  Finance   (Chap.  5  contributed  by  Lyman  J.  Gage).     Chicago,   1895. 

Chapman,   John   M. — Fiscal    Functions   of   the    Federal    Reserve    Banks.      N.    Y.,    1923. 

Chicago  and  Cook  County  Bankers'  Association,  records. 

Chicago  Commerce,   files. 

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Chicago  Clearing  House  Association,  records. 

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Clifford,    Edward — Selling    the    First    Installment    of    the    Liberty    Loan,    1917. 

Coin's   Financial   Series    (monthly) — Coin    Publishing   Co.      Chicago,    1895. 

Cole,  Arthur  C. — Era  of  the   Civil  War,   1848   to   1870.     Vol.   3,   Centennial    History  of  Illinois, 
Springfield,   1919. 

Comptroller  of  the  Currency,  reports. 

Conant,   Charles  A. — A  History  of  Modern   Banks  of  Issue.     N.   Y.,   1915. 

Commercial  and  Financial  Chronicle,   files. 

Continental   and   Commercial   Banks,   Chicago — The    Making   of  a  Modern   Bank. 

Cooke,   Guy   Wickes — The   First   National    Bank   of   Chicago,   History   from   1863    to    1913.      Chi- 
cago, 1913. 

Cross,  Wm.  T. — The  Making  of  a   Trust  Co.      Chicago,   1923. 

Davis,  Andrew  McFarland — Origin  of  the  National   Banking  Svstem.     Washington,   1910. 

Dewey,   Davis   Rich — Financial   Historv   of   the    United   States.      N.   Y.,    1907. 

Dowrie,    George  William — The   Development   of   Banking   in  Illinois,    1817    to    1863.      University 
of   Illinois,    1913. 

Dreesen,  W.  H. — State   Banks  in   Illinois  Since   1S63. 

Dunbar,    Charles   Franklin — Economic   Essavs.      N.   Y.,    1904. 

Federal  Reserve  Bank  of  Chicago,  Annual   Reports,    1915   to   1925. 

Federal   Reserve  Bank  of  Chicago.   Business   Conditions   Bulletins. 

Federal    Reserve    Bank    of    Chicago,    files    and    records — Certificate    of    Indebtedness    Div'sion   of 
the  Bond   Department  and   Division  of  Research  and   Statistics. 

Federal  Reserve  Bank  of  Richmond — letters   on    the    par   collection    controversy. 

Federal   Reserve  Bank  of  St.    Louis,    annual   reports    1915    to   1925. 

Federal   Reserve  Board,  annual   reports   1914   to   1924. 

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736 


BIBLIOGRAPHY  m 


Forgan,    James   B. — Recollections   of  „    t>  T  ., 

Gage.   Lyman  J.-Banking  in   Illinoi^-ln1' WnrM?"   oN'   T-   1922' 

r™Jt° vi893'  ii'inois-In  World  s  Congress  of  Bankers  and   Financiers       Phi 

aae  ^Xieii^^^^^-i-eri-i-i^  -  "«*■*  »~. 

O^wfeftete   SeSt^°19B0a9?kr-10n9.COmmerCial    and    Fi-ncia,    Chronicle, 
Greenwood     W?  J.L-Amlriran    ^"l-  °f  •IndLana>    1922- 

i^nr#T£plF^  Practice-  N- r- »«■ 

&K'^V^^  N    Y     1925 

s^.]^^5ssfer5ffi5Si  w*  bSsJimI01  Bankin&  in  cnicag°-  ^as*  »o7. 

Hepburn,  A.  La  Hi  tor  Tr,  r»  ^      Chicago,    1896. 

Hollander,   Jacob  H.-Certificat? or >i7«  w  the  United  States-     N.  Y     1924 

HoIlfer/rf^3  ^e.teclness  in  Our  War  Financing.4-  Journal  of  Poiitica. 

Hunt's   MerJfa°LH^llln^°67infF'   ^ 

I SlnSl!  §an^    C?mmissioner's   Reports 

H    no  =  jankers'    Association,    proceedings 

jBBmB%£^.S  'KB0  Accounts'  «»»t* 

WhSSWoSS1^  ^CiatiSn'    P^^dings. 
Johnson!  SterF'("idI)nlAHdst^,rrer^     N'  Y>   19°5- 

sstsari  ^ L7IC  f °p   WorId's  co,umbian  Exposition- N-  t-  i897- 

Kane,  Thomas  P.— Romance  an ^tv     P2nios,  ln   the  United   States      N    V     iqie 

Leffingwell    R    p      t«  'TBanklne  Reform       Chicae-o     1019 

Marshall.   L.   C.   CW^SJLoVp^      Chicago,    1924. 

MoranrtLCilBa?k^0and9£r  J'  F'e,d-Materia'S  ^   ^   Study   of   E,ementary   Eco- 

Morris,    Henry   C-f?rSt   Currency   Problems. 

KSTrSXSSi?  "teV""  P~&„F'n"~te''  °<  ■"•  CM,  war.     Phi,adeIp„„.  ,,„. 

&&&.  s«c:: ,8is  ,o  i8<8-  v°'- 2  °f  -  °—  ■—» - 

Powers,   L.    Q.-Farmer  H, vlf]6 •Ba^klng  in  Illinois. 

Preston.    Howard    H      u    ,yseed   ln    Town.      St     Paul     18QS 

Rice,    Warfec^Th?FhWo^t^vB|J,kLne    in    ^wa       Iowa    City     1922 

«tdri^7l^Thl°f  Soi"  EXCha^e'    a   History^cScako  9f923. 

Rewell— Chicago  in  1880  (Hn^X Banking  Progress.  N.  Y  1924 
Spaulding,  E.G.— Financial  Hfctty  °£  Chj«*so  Master's  Thesis) 
Sprague,  O.  M.  W.— Htetorv  of  ™I7   0/t  t,"6    War-      Buffalo     18 69 

Union   Trust   Company    Chfc^VL^0^1'''  £les'  etc- 

U    SStSeni,tSe5at^ "SSrtT^   th6irdTn^n   TrUSt   Co»»ny.      Chicago     1919 


INDEX 


Adair,    A.    M.,    235 

Adams  State  Bank,   Chicago,   452 

Agriculture,  29,  48,  172,  196,  287,  298,  316, 
319,     455,     466,     468,     478,     482,     484,     492 

Aiken,    Edmund,    201,    551 

Aldrich,    Nelson    W.,    376,    395 

Aldrich    Plan,    395,    402 

Aldrich-Vreelend  Act,  361,  377,  393,  510,  611, 
622,   630 

Allerton,    Samuel    W.,    601,    604 

Altgeld,   John  P.,   294 

Alton,   48,   87.    99 

Amalgamated    Copper    Co.,    323 

American  Bankers'  Association,  377,  397, 
406,    497,   552 

American  Exchange  National  Bank,  Chi- 
cago,  276 

American    Institute    of    Banking,     556,    561 

Andrew,    A.    Piatt,    353,    383 

Anti-trust    Law    of    Illinois,    362 

Appendix,    624 

Armour  and   Company  bonds,   542 

Armour,  Philip  D.,  251,  505,  529,  593,  604, 
605 

Ashland-Twelfth  State  Bank,  Chicago,  371, 
572 

Atlas    National    Bank,    Chicago,    583 

Austin    bill,    572 


Badger,    A.    C,    175.    177 

Bank    buildingrs,    560 

Bank    capital    in    Chicapo,    452 

Bank    consolidations,    322,    463 

Bank    failures.    1893,    254 

"Bank  Man,  The,"   561 

Bank  of  America,  Chicago,  146 

Bank   of   Brownsville,    69,   70 

Bank   of  Cairo,   55,   59,   60.   88 

Bank    of    the    City    of    Chicaso.    145 

Bank    of   Commerce,   Chicago,   147 

Bank    of   Edwardsville.    55.    56,    60.    69,   70 

Bank    of   Illinois,    Alton,    87 

Bank    of    Illinois,     Belleville,    87 

Bank    of   Illinois,    Chicago.    S7.    99 

Bank    of   Illinois.    Danville,    S7 

Bank    of    Illinois,    Galena,    87 

Bank    of    Illinois,    Jacksonville,    87 

Bank    of    Illinois.    Quincy,    87 

Bank    of    Illinois,    Shawneetown,    51,    52,    60, 

69,    83,    88,    89,    91,    99 
Bank   of   Illinois,   Springfield,    S7,    89,    91,    96, 

99.    135 
Bank    of    Kaskaskia,    55,    59,     60 
Bank    of   Missouri,   55,    56 
Bank    of    Montreal,    Chicago,    222.    574 
Bank    of    Illinois,    Mt.    Carmel,    87 
Bank   of   Nova   Scotia,   Chicago,    574 
Bank   of   Palmyra,    69,    70 
Bank    of   the   United    States,    48 
Bank    of   Vandalia,    69,    73,    87 
Bank    run    on    Sunday,    573 
Bank    war,    123 

Vol.    1—24 


Bankers'    acceptances,    499,    621 

Bankers'    Club    library,    566 

Bankers'    Club    of   Chicago,    562 

Bankers'    conventions,    200,    551.    552,    562 

Bankers'    organizations,    551 

Banking,   Chicago,   137 

Eanking  laws,   60,   63,  115,  123,   127,  132,   135, 

153,     165,     167,     201,     206,     208,     238,     239, 

242,     360,     364,     453,     577,     580,     586,     587, 

623 
Banks    abandoned    by   Chicago    packers,    255 
Banks     abolished     from     Illinois,     115,     168, 

201 
Banks  as  community  centers,   560 
Banks,    first    created    in    Illinois,    51 
Banks    in   Morgan    Park,    452,    571 
Banks  with   special    charters,   243 
Baring    Brothers'    failure,    245,    608 
Barnes,    Albert    C,    584 
Barter,    35 
Baty,    E.    N.,    556 

Baynton,    Wharton    and    Morgan,    44 
Belleville,   87 
Berger,   Robert,  581 
Bibliography,    736 
Blair  and  Company,   272,   539 
Blair,    Chauncey   B.,    174,    216,    229 
Blair,   Chauncey   J.,    505,    507 
Blair,    William     McCormick,    430 
Blake,    E.    Nelson,    264 

Bland-Allison   Silver   Purchase   bill,  237,   2SS 
Bloomington,    229 
Blount,    Fred,    328 
Bond     committee,     370 
Bond    prices.    166.    370 
Bonds,    Illinois    state,    96, 
Bosworth,    Charles     H.,    31 
Bourland,    O.    P.,    255 
Bowen,    J.   H.,    502 
Brady,    James,    374 
Bragg.    Edward    S,    303 
Braisted,    E.   E.,    502 
Branch     national     banks, 
Breese,    Jacob    B.,    528 
Brewster,     Edward     L.,     521 
Broadhead,    G.    H.,    522 

Broadway   State   Bank.   Chicago.   371,   374 
Brown,    William    H.,    138,    143 
Brownsville,    69,    70 
Bryan,    Thomas    B.,    265,    266,    267 
Bryan,     William     Jennings,     296,     300,     306, 

308,    321,    564 
Buck-Austin    bill,    453,    577 
Buckner,   Simon   B.,  304 

Building   and    Loan    associations,    238,   319 
Bull,    Lorenzo,    553 
Bullion    Savings    Bank,    150 
Bunn,    Jacob,    173 
Business    conditions    chart,    609 
Butchers'    and    Drovers'    Bank,    Chicago,   147 
Byllesby      Engineering      and      Management 
Corp.,    546 


104.    171 
32S 


277,     588 


Cable,    Benjamin    S.,    304 
Cahokia,    44 


739 


740 


IXDEX 


Cairo,   48,   51,   59,    60,   88 

Caldwell,     George     B.,     562 

Calumet    Electric    Street    Railway,    309 

Cannon,    Joseph    G.,    378,    564 

Carlin,     Governor,     96,     100 

Cattle    paper,    *. 4 3 

Central    National    Bank,    Chicago,    237 

Central    Trust   and    Savings    Bank,    Chicago, 

581,    582 
Central    Trust    Company,    Chicago,    390,    399, 

409 
Certificates    of    Indebtedness,    435,    637,    642, 

644 
Chase,  Salmon   P.,   179,  187,   189 
Check    Collection,    411,    499,    615 
Chemical    National    Bank,   Chicago,    248,    277 
Chicago    Bank,    Chicago,    147 
Chicago     bank     aid    to    U.     S.     Government, 

257 
Chicago    bank    figures,    222,     348,     359,     424, 

629,  634 
Chicago   Board    of    Trade,    363,    369,    503,    519 
Chicago  branch,  second  state  bank,  138 
Chicago   Chronicle,    338 
Chicago,   City  of,   79,   81,   83,   85,  90.   120,   132, 

133,     137,     150,     156,     163,     173,     183,     213, 

214,     217,     219,     220,     221,     285,     356,     519, 

546,     568,     575 
Chicago    and    Cook    County    Bankers'    Assn., 

555,  586 
Chicago      Clearing     House,      199,      205.      229, 

241,     253,     310,     327,     330,     331,     332,     333, 

371.    383.     459,    502;    566,    569,    635 
Chicago     Clearing     House     early     clearings, 

515 
Chicago    Clearing    House    membership,     517 
Chicago    Clearing    House    officers,    635 
Chicago    clearings,    424,    453,    515,    634 
Chicago  established  as  second  banking  city, 

316,    367 
Chicago    Evening   Post,    337,    373 
Chicago    fire,    209,    504 
Chicago    gold     market,    519 
Chicago    Herald,    337,    429 
Chicago    Joint    Stock    Land    Bank,    546 
Chicago     Marine    and     Fire    Insurance     Co., 

108,    141,     165,     197 
Chicago  markets,   25,    199,   229.   240,    422,    519, 

542 
Chicago    meeting    on    Federal    Reserve,    406 
Chicago    Mining    Board,    521 
Chicago   National    Bank,   327 
Chicago    Savings    Bank,    147 
Chicago   Society    for   Savings,    238 
Chicago   Stock   Exchange,   307,   369,   519,   525, 

531 
Chicago  Stock  Exchange  building,  528 
Chicago    Title    and    Trust    Co..    374 
Chicago,    trade    center,    79,    90,    220,    240,    519 
Chicago   World's    Fair,   263,    527 
Chinese    loan,    425 
"Christian    Banker,"    145 
Clark,    George    Rogers,     45 
Citizens     League     for      the      Promotion      of 

Monetary    Legislation,    367 
City    Rank,    Chicago,    147 
Civil    "War,    153,    173,    178,    520 
Civil    War  financing,    173,    197,    205 
Clearing  House   balances,  503 
Clearing  House  committee,   511,  635 
Clearing    House    examiner,    507 
Clearing    House    loan    certificates,     228,    253, 

263,    352.    357,    503,    505,    510,    514 
Clearing    House    reorganization,    506 
Clearing    House    ruling    for    failing    banks, 

506 
Clearings,    424,    453,    515,    634 


Cleveland,    Grover,    257,    291 

Coal,   29 

"Coin's    Financial    School,"    298 

Columbia  National   Bank,  Chicago,    248 

Commercial     National     Bank,    Chicago,    214, 

276 
Commercial    paper,   498 
Constitution,    115,    167,    206 
Continental     and     Commercial     Banks,     367, 

410,    425,    460,    462,    605 
Continental    National     Bank,    Chicago,     276, 

326 
Conventions,     200,    551,     552,    562 
Cook    County   National    Bank,   Chicago,    230, 

239 
Cooke,    Jay,    188,    189,    191,    197,    227 
Coolbaugh,    William    F.,    174,    230,    502,    591 
Corn     Exchange     National     Bank,     Chicago, 

276,    460,    463 
Crawford,    William    H,    55,    56,    65 
Creiger,    DeWitt   C,    264,    265,   267 
Crime    of   1920,    474 
Crime   of   Seventy-three,    236.    305 
Crises,    92,    103,    127,    149,    177,    197,    209,    224, 

239,    245,    297,   300,   325,   344,  346,   505,   510, 

525,     527,     528,     541,     608,     611 
Cullom,    Shelby    M.,    264 
Culp,    Benjamin,    571 
Currency  and  credit,   607 
Currency,    elastic,    321 
Currency,  emergency,  228,  231,  253,   263,  352, 

510,    515 
Currency,   fractional,    205 
Currency,    illegal,    111 
Currency     inflation     propaganda,     202,     232, 

234 
Currency    law   of   1900,    320,   348 
Currency    reform,    376,    394,    473,    624 
Currency    shipments,    612,    615 
Customer   ownership,    546,   547. 


n 


Danville,    87,    229,    576,    589 

Danville,    Stock    Security    Bank,    131 

Davis,   George  R.,   266 

Dawes,  Charles  G.,  317.  341,  343,  407,  409, 
410.    555,    564,    574,    577 

Day,    Albert    M.,    522 

Debs,   Eugene   V.,  292 

Decatur,    234 

Decatur   Mutual   Savings    Association,    238 

DeKoven,    John.    174,    502 

Delano,    Frederick    A.,    402 

Democratic  attitude  toward  Federal  Re- 
serve  Act,   409 

Democratic   convention  at   Chicago,   294,   296 

Democratic   gold   party,   300 

Deneen,   Charles  S.,    580,   584 

Deposit  banking,  63 

Deposits   received   when    insolvent,    239 

Depreciation   of  securities,    120 

Depression     of    1920,    455,    476 

Diamond   Match    Company,    306,    529 

Dime   Savings   Bank,  Chicago,   147 

Discrediting  bank  notes,   156 

Dollar  Savings  Bank,  Chicago,  147 

Dreyer.   E.   S..   312,   315,   5S1 

Dwiggins'   system,    248 


i: 


Bames,    Henry    F.,    174 

Earl    Motors.    Inc.,    459 

Eckels.   James  H,   261,   304,   341,   343 

Eckhart,    B.    A.,    326 


INDEX 


741 


Eddy,    Ira    B..    145 

Edgewater   Bank,    Chicago,    585 

Kdwards,   Ninian,    49,    55,    56,    74 

Edwardsville,    51.    55,    56,    60,    61,    69,    70,    546 

Elastic  currency,   321 

Ellis,    J.    H.,   502 

Emergency     currency,     228,     231,     253,     263, 

352,    510,    515 
English    banking    system    blamed,    162 
English   settlers,   35 
Equitable  Trust  Co.,  Chicago,  327 
European  loan,  322 

European     War,    368,    422,    498,    513,    530,    Cll 
Evanston   National    Bank,  253 
Exchange,    142,    255 
Exchange    Bank,    Chicago,    147 
Exchange    chart,     609 


F 


Failure  of  Jay  Cooke  and  Co.,  227 

Farm    loan    securities,    543 

Farmers'    Bank,    Be  thai  to,    372 

Farmers   Bank,   Chicago,   147 

Farmers'    National    Bank,    Bushnell,    239 

Farson,   John,    538 

Farson,    John    &    Son,    540 

Farson,  Leach  &  Co.,   538,   540 

Farwell,    Charles    V.,    266 

Federal   Land    Bank    of    St.    Louis,    543,    546 

Federal  Land    Banks,    543 

Federal   Reserve   Act,   397,  399,  402,   406,    411r 

475,    486,    510,    611,    612 
Federal    Reserve    Eank    of   Chicago,    32,    375. 

410,     417,     419,     426,     442,     448.     468,     482, 

483,    487,    491,    493,    494.    509,    515,    637 
Federal  Reserve  Bank  of  St.  Louis,  426,  46S, 

480,    482,    484,    490 
Federal   Reserve   directors,    401,    410 
Federal  Reserve  discount,  410,   416,   426,  471, 

479,    482,    493 
Federal   Reserve    districts.    400,    417 
Federal   Reserve    loans,    478,    491 
Federal   Reserve   membership,   480,   482 
Federal    Reserve   notes,    473,    477,    498,    618 
Federal   Reserve    statistical    service,    493 
Federal  Reserve   System,    317,    406,    467,    486, 

560,    615,    618 
Fenton,    Frederick    R.,    562 
Fernwood   Trust   &   Savings    Bank,   Chicago, 

372 
Fidelity   Savings    Bank,    Chicago,    237,    605 
Field,   Marshall,   252,    505,   593,    603,    605 
Fifer,    Joseph    W.,    270 
Fifth    National    Bank,    Chicago,    219 
First"  Federal   income   tax,   197 
First   national   bank    charter,    191 
First     National     Bank,     Chicago,     192,     203, 

210,    214,    217.    230,    246,    276,    410,    460 
First    National    Bank,    Davenport,    la.,   192 
First    National    Bank,    Joliet.    390 
First  National  Bank,  Kankakee,  253 
First    National    Bank,    Monmouth,    239 
First    national    bank    opened,    192 
First  National  Bank,  Philadelphia,   191 
First    State    Bank    of    Illinois,    64 
First    Trust    and    Savings     Bank,     Chicago, 

340 
Flagg,    W.    C,    234 
Ford,    Gov.    Thomas.    97,    100 
Frame,    Andrew    J.,    559 
Franklin    Savings    Banlc,    Chicago,    571 
Franks,    David   and   Co.,    45 
French,  Gov.  Augustus  c.  116,  117,  119 
Foreign  bank  notes  in  Illinois,  123 


Forgan,    James    B.,     255,     259,    332,    383,    397. 

400,   407,    410,    418,   443,   460,   507,   508,   511, 

564,    574,    598 
Fort  Crevecoeur,  39 

Fort  Dearborn   Banks,  Chicago,   458,    605. 
Fort  Pimitoui,   39 
Fort  St.  Louis,  39 
Four   Minute   Men,    430 
Fowler,   Charles   N.,   376,    407 
Fractional  currency,  205 
Free  banking  system,  115,  146,  149,  153,  196, 

233 
Free   silver,   235,   257,   287.    321,    326,    530,    611 
French   Government   credits,    425 
French   settlers,   35,   43 
Fur  trading,  39,   40 


G 


Gage,  Lyman  J.,  174,  189,  229,  231,  266,  298, 
316,  320,  321,  324,  502,  506,  552,  563, 
564,    592,    597 

Galena,    87 

Gary,    Elbert    H.,    365 

General  banking  law,   242 

Geographic  attributes  of  Illinois,  23 

German-American  Savings  Bank,  Chicago, 
237 

German    National    Bank,    Chicago,    237 

German   Savings    Bank,   Chicago,   237 

Glass,    Carter,    396,    408 

Globe   Savings  Bank,  Chicago,  581 

Gold    bank   suggested,    162 

Gold    discoveries,    295,    316 

Gold    importations,    424 

Gold   movements,    472,   618 

Gold   settlement   fund,   414 

Goodnow,    William    H.,    519 

Graham,   Andrew,   578 

Graham     &    Sons'    Bank,    Chicago,     578 

Grain,  Chicago,   229,   254,   307,    324,   369 

Great   Lakes,    80 

Greenback    movement,    234 

Greenbacks,    180,    195,    197,    202,    321 

Greenebaum,     Henry     &     Co.,     Chicago.     237 


H 


Haines,    John    C,    148 

Halsey,    N.   W.,    540 

Halsey,    N.    W.    &   Co..    540 

Halsey,    Stuart   &    Co.,    540,    542 

Hamill,    Ernest   A.,    511,   513 

Hamilton,   John  L,    552 

Hammond,  William  A.,  308,  315,   522 

Hanna.    Marcus    A.,    296 

Harding,    W.    P.    G.,    481 

Harkin,    Daniel    V.,    370,    371 

Harmony  Hall,   145 

Harris,   A.   W.,    537 

Harris,   B.   F.,  555,  576 

Harris,    E.    L,    444,    447,    449,    450,    451 

Harris,   Forbes  &  Co.,  540 

Harris,    Norman    W.,    537,    538 

Harris,  N.  W.  &  Co.,   537,   538,   540,  541 

Havana,    111.,    198 

Heath,    William    A.,    32S,    428,    431,    446 

Henrotin,    Charles,    522,    528 

Hepburn,   A.   B.,  406 

Hering,   Henry   W.,    344 

Hessing,   Washington,  304 

Hibernian   Savings    Bank,   Chicago,   214 

Higinbotham,    Harlow,   N.,   267,  278 

Hill,    D.    K„    269 

Hill,    David    B.,    296 

Hilton,    John    C,    519,    520 


742 


INDEX 


Hinze,    F.    Augustus,    350,    351 

Hobbs,  L.  L,  444 

Hodge,    W.    H.,    546 

Holmes,   Ira,   502 

Home   National   Bank,   Chicago,    556 

Home  Savings  Bank,   Chicago,   327,   55^ 

Honore,  H.  H,   519 

Hopkins,  John  P.,  304 

Hubbard,  Gurdon   S.,   138,   143,   588 

Hughes,    E.    E.,    374 

Hulbert,  Edmund  D..  398,  408,  465 

Hummer,    Wayne,    553 

Hunt,  Edward   S.,   522 

Huttig,   H.   W„   373 


Illegal   currency,   111 

Illinois  bank  charters,   206 

Illinois    Bankers'    Association,    398,    552,    570, 

576 
Illinois  banks,  destruction  of,   149 
Illinois  Central  Railroad,  26 
Illinois,   French  territory,  40,  44 
Illinois    Merchants   Trust   Co.,    Chicago,    464, 

605 
Illinois-Michigan  Canal,  25,  80,  101,  199,  239, 

589 
Illinois'   refusal   of  greenbacks,   181 
Illinois  River  Bank,  La  Salle,   145 
Illinois  Savings  Institution,  Chicago,   148 
Illinois    State    Bank,    Chicago,    166,    371 
Illinois  State  bonds,   540 
Illinois  Trust  &  Savings  Bank,  Chicago,  250, 

276,   463 
Indianapolis   Monetary  Convention,    317,   320 
Ink   made  legible  by  fire,  210 
Insull    financing,    542 
Insurance  companies,  108,  206,  214 
Insurance   convention,    344 
Interest   rates,   498 

Internal    improvements,   25,    83,   91,   94,   128 
Investment  Bankers'  Association,  561,  562 
Investment  banking,  536 
Ives,   G.   A.,   502 


Jackson,   Andrew,    100 

Jacksonville,  87 

Jamieson,  Malcolm  M.,  528 

Jeffery,    Edward   T.,    265,    267 

Jelke,  John  F.,   373 

Joint    commission    of    agricultural    inquiry, 

478 
Joint   stock   land    banks,    543,    544 
Joliet,    356 
Jones,   Thomas    D.,    401 


K 


Kaskaskia,    44,    45,    51,    55,    59,    60,    63 

Kean,   S.   A.,   538 

Kean,    S.    A.    &   Co.,    537,    540 

Keeley,    James,    332,    429 

Kent,    Fred    I.,    561 

Kin  ley,    David.    395 

Kinzie,  John  H.,   138,    139,    147 

Kirby   Savings    Bank,   570 

Kirby,    William    P.,   570 

Kneath,    Watkin    \\'.,    562 

Knox,  John  Jay,  225 

Knox,    William    E.,    497 

Koch,    Edward,    528 

Kohlsaat,    Herman,    H,    295,    337 


Lacey,  Edward  S.,  341,   343 

LaForest,   39 

Lake  Shore  Trust  &  Savings  Bank,  Chicago, 
605 

Land  ownership,  45,   65 

Land   patents,   first   in   Illinois,   39 

Land  speculation,   45 

Largest  bank  in  the  country  at  Chicago,  246 

Largest  state  bank   in   the  country,   464,   465 

La  Salle,   36,    37,    39,    79 

La  Salle  Street  National  Bank,  Chicago,  370 

La  Salle  Street  Trust  &  Savings  Bank,  Chi- 
cago,   370,    572 

Latham    bill,    572 

Laughlin,  J.  Laurence,  298,  317,  395,  408,  564, 
606 

Law,    John,    40 

Lawndale    National    Bank,    Chicago,    390 

Laws,  60,  63,  115,  123,  127,  132,  135,  153,  165, 
167,  201,  206,  208,  238,  239,  242,  360, 
364,     453.     577,     580,     586,     587.     623 

Lawson,    Victor    F.,    298 

Leach,    A.    B.,     538 

Leach,    A.    B.    &    Co.,    537,    540 

Leach,   F.   W.,    537 

Lead    in    Illinois,    29,    99 

Legal  holidays,  355 

Legislature,    special    session,    270 

Leiter,  Levi   Z.,   603 

Liberty   Loans,    426,    441.    472.    637,    640 

Liberty  Trust  &  Savings  Bank,  Chicago, 
605 

Lincoln,  Abraham,  151,  153,  168,  173,  174, 
175,    198 

Live  Stock  Exchange  National  Bank,  Chi- 
cago,   605 

Loan  and  trust  companies,  205 

Lombard,    Isaac    G.,    174,    505.    507 

Lombard,    Josiah,    502 

Lorimer,    William,    370,    586 


M 


McCormick,  Cyrus  H,  304,  601,   605 

McCutcheon,    Ben,    429 

McDougal,   James   B.,    427,   431,   446,   508 

McElroy,  Solon,   519 

McKinley,   William,    296,    316,    323 

McVeagh,   Franklin,   304,   383 

Madison  &   Kedzie  State  Bank,  Chicago,   571 

Manufacturer's  National   Bank,  Chicago,  230 

Map  of  Chicago,  81,   211 

Map  of  Illinois,   77 

Marine  &  Fire  Insurance  Bank,  Springfield, 

173 
Marine    Bank,    Chicago,    112,    121,    123,    141, 

146,    155,    165,    167,    197,    215 
Marine  Savings   Bank,   Chicago,   147 
Marketing,    32,    48 
Marshall,    John,    93,    99 
Mason    and    Slidell,    179 

Mt-adowcroft    Brothers,    Ottawa,    580,    586 
Mechanics  National  Bank,  Chicago,  503 
Medill,   Joseph,   298 
Merchants'     &     Mechanics'     Bank,     Chicago, 

112,    147 
Merchants,     Farmers     &     Mechanics     Bank, 

Chicago,    197,    237 
Merchants'    Loan    and    Trust    Co.,    Chicago, 

212,   215,   460,   463,   605 
Merchants'   Savings  Loan   &   Trust   Co.,  Chi- 
cago,  14S,   197 
Metropolitan    Bank,   Chicago,    147 
Metropolitan    National    Bank,    Chicago,    241, 

276 


INDEX 


743 


Metropolitan  State   Bank,  Chicago,   452 
Michigan   Avenue  State   Bank,   Chicago,   456 
Milwaukee    Avenue    State    Bank,    Chicago, 

344 
Milwaukee-Irving  State   Bank,   Chicago,   462 
Mississippi    Bubble,    40 
Missouri  Bonds  and  Illinois  banks,  128,  156, 

160 
Mitchell,    Alexander,    109,    111,    141,    568,    590 
Mitchell,  John  J.,  251,  378,  465,  507,  511,  529, 

600 
Mitchell,    William    H.,    600 
Monetary   reforms,    320 

Money  in  use,  47,   48,   76,  95,  103,  137,  171 
Money  market,  612 
Money   rates,    611,    615,    616,    619 
Montgomery,   S.   B.,   398 
Monticello,    546 
Moore    Brothers,    306,    529 
Morgan-Belmont   Syndicate,   293 
Morgan,  George,  44 
Morgan   Park,    452,    571 
Morris,    Edward,    604 
Morse,   Charles    W.,    350,    351 
Mt.  Carmel,  87 
Munday,    C.    B.,    370,    586 
Murray,    William,    44 


N 


Naperville,  120  - 

National    Bank    Act,    187,    191,    196,    320,    339, 

344,  353,  615,  622,  624 
National  Bank  of  Commerce,  Chicago,  230 
National   Bank  of  Illinois,   Chicago,  276,   308 
National   Bank    of   North    America,   Chicago, 

326 
National    Bank    of    the    Republic,    Chicago, 

465 
National    Banks,    32,    173,    186,    187,    222,    230, 

277,   320,   423,   558 
National    banks,    Illinois,    193,    206,    233,    241, 

320 
National  Banks,  opposition   to,  201,   206 
National    banks,    organization    of,    191,    193, 

195,    200,   201 
National  City   Bank   of  Chicago,   465 
National  currency,   100,   182,  185 
National    Currency   Association    of   the    City 

of  Chicago,   388,  5.10,   515 
National   currency  associations,   380 
National    Electric  Light   Association,    549 
National   Live   Stock    Bank,   Chicago,    466 
National   loans   for  Civil   War,   179,   182 
National     Monetary    Commission,     361,     377, 

394 
National  Sound  Money  League,  304 
Natural    gas  in    Illinois,   29 
New  Orleans,   48 
New    York    Biscuit    Co.,    306 
New    York    Stock    Exchange,    225,    294,    297, 

306,     323,    325,     347,     369 
Niblack,    W.    C,    374 

Nickerson,   Samuel   M.,    174,    596,    599,    601 
North  Shore  Savings   Bank,  Chicago,   585 
Northern  Pacific  Corner,   323 
Northern   Pacific   Railroad,   227 
Northern   Securities   Co.,   325 
Northern  States   Power  Co.,   546 
Northern    Trust    Co.,    Chicago,   276,    279,    281, 

283 
Northwestern   National   Bank,   Chicago,    276, 

504 


Odell,  John  J.  P.,  552,  563 
Open  market  operations,   489 
Osgood,  Roy  C,   562 
Ottawa,   202,   580 
Outlying  banks,   Chicago,   556 


Pacific  Coast,   exchange    established,    142 

Pacific   Gas  &    Electric  Co.,   546 

Packing  industry,   29 

Paine,  Seth,   145 

Paisley    case,    585 

Paisley,   Oliver   P.,    673 

Palmer.  John  M.,    300,    303,   304 

Palmyra,   69,  70 

Panic  of  1837,  92,  103 

Panic  of  1864,  127 

Panic  of  1857,  149 

Panic  of  1861,  177 

Panic  of  1864,  197 

Panic  of  1871,  209 

Panic  of  1873,  224,  505 

Panic  of  1884,  239,  523 

Panic  of  1893,  245,  505,  527,  528,  541,  608 

Panic  of  1896,  297,  300,  611 

Panic  of  1903-4,  325,  611 

Panic  of   1907,   344,   346,   510,   541,   611 

Panics,   608 

Paper  money,  45,  48,  52,  65,  71,  73,  75,  103, 
105,  108,  111,  124,  125,  129,  141,  148,  150, 
157,  160,  165,  168,  179,  182,  185,  191,  195, 
196,  200,   201,  321,   473,   498,   519,   520 

Par  collection,   411,   499 

Park   National   Bank,   Chicago,    246 

Parker,   Alton   P.,   326 

Paulsen    &    Sparre,    582 

Paulsen,   William   A.,    581,    582 

Peabody,   Francis   B.,  536 

Peabody,  Francis  S.,  304 

Peabody,    Houghteling   &   Co.,   537 

Peace  Credits,  425 

Peacock,  Everett  R.,  462 

Peck,   Ferdinand   W.,    264 

People's  Bank,  East  Alton,  372 

Peoria,   229,   356,   555 

Petroleum   in   Illinois,   29 

Phelan   Act,    481 

Phelps,  Erskine  M.,  278,  304 

Phoenix  Bank,  Chicago,  147 

Pioneers,   23,   24,  31,   35,   44,   79 

Pittsburgh   Stock    Exchange,   351 

Plot  to  blow  up  the  Federal  Reserve  Bank, 
418 

Political   banking,   371,  373 

Political  controversy  over  banks,  96,  104, 
115,  168 

Populist  Party,   297 

Posters,    430 

Potter,  Edwin  A.,   365 

Potocki,    Michael,    571 

Prairie  State  Loan  &  Trust  Co.,  Chicago, 
210,   557 

Preston,   Kean   &   Co.,   537 

Price   adjustment  chart,  469 

Prices,  476 

Primitive  banking,  35,  46,   137 

Private   bank    conference,    574 

Private  banks,  201,   208,  453,  555,  567,  623 

Progressive   discount   rate,    480,    481 

Publications,    145,   561 

Pujo,  Arsene  P.,  396 

Pullman,  George  M.,  605,  606 


744 


INDEX 


Quincy,  87,  356,  398,  553 
R 

Railroads,  26,  83,  91.  95,  127,  198,  224,  227. 
239,    276,    287,    291,    466 

Rawson,  Frederick  H.,  331 

Rawson,  S.  W.,   210 

Real    Estate,   Chicago,    246 

Ream,    Norman    B.,    593,    604 

Rediscount   rates,    479,    482 

Republican    National    Convention,    235 

Reserve  cities,  412 

Resumption  of  specie  payments,  205,  231, 
239 

Reynolds,  Arthur,  446,  552 

Reynolds,  George  M.,  368,  397,  400,  407,  410, 
511,    513,    552 

Ridgely,  N.  H.,   &  Co.,   173 

Ridgely,   William   B.,   327,   330,   338,   343,    564 

Riots   in   Chicago,    291 

Rockford,   356 

Roosevelt,    Theodore,    324,    346,    361,    376 

Root,   Elihu,   409 

Roseland    Bank,   Chicago,    312 

Run  on  Illinois  Trust  &  Savings  Bank,  Chi- 
cago,  250 

Russell,   Andrew  W.,   587 

Russell,   Martin    J.,    338 

Russian   Roubles   save   Chicago   bank,    573 

Russo-Japanese  War,   326 

Rutter,  Joseph  O.,   563 

Ryerson,    Donald   M.,    430 


s 


St.   Louis,    51,   131 

San   Francisco  earthquake,  343 

Sanitary  district  of  Chicago  bond  issue,  539 

Savings   bank  crash  of  1877,   237 

Savings    bank    legislation,    238 

Savings   banks,   205,   237,    261 

Scammon,   J.    Young,    112,    121,    123,   141,    167, 

502 
Schneider,  George,  264,  308 
Schray,  Clayton  G.,  562 
Schroeder,  Joseph   J.,   556 
Scott,   John   WT.,   337 

Scottish   Illinois   Land   Investment   Co.,   Ill 
Second  National   Bank,  Chicago,  230 
Second  National  bank   to  open,   193 
Second  state  bank  in  Illinois,  65 
Second  United  States  Bank,  100 
"Secret    meeting"    of    the    Federal     Reserve 

Board,  474 
Securities,  depreciation,  120 
Securities  sold  on  Chicago  Stock   Exchange, 

522,    524,   533 
Seeberger,    Anthony    F.,    264 
Seipp,   William   C,    264 
Seymour,  Horatio,  338 
Sheridan,    Philip,    591 
Sherman  Anti-Trust  Law,  325 
Sherman    Silver  Purchase   Law,    288 
Shewell,    Thomas    F.,    198 
Shawneetown,    51,    52,    60,    69,    70,    83,    88,    89, 

91,  99 
Silver   controversy,   2S7,   321,   326 
Silver  controversy   cartoons,  289.  301,  313 
Silver   platform,    298 
Silverman,    L.    &    Co.,    Chicago,    21 « 
Slaughter,  Arthur  O.,  522,  528 
Smith,   Byron  L,   505,   507,   511,   563,   599 


Smith,    George,    109,    111,    113,    123,    141,    155, 

162,    568,    590,    622 
Smith,   George   &   Co.,   113 
Smith,   Orson,    174,  507,   511,   563,   593,   595 
Smith,   Solomon  A.,   174,   229,   592 
Smith's   bank    legalized,   124 
South   Side   Bankers'   Association,    556 
Southwest    Savings    Bank,    Chicago,    372 
Souvenir    half-dollars,    274,    276 
Spalding,   Charles  S.,  581 
Spanish    settlers,    35 
Spanish   War,   318 
Specie   bank   suggested,   162 
Specie   circular,   103 

Speculation  on  Chicago  Stock  Exchange,  524 
Spiritualist    banking,    145 
Springfield,  87,   89,   91,   96,   99,   120,   135,   356 
Spurgin,  Warren  G.,  456 
Standard  Oil  Company,   349,   362 
Starved    Rock,    39,    41,    44 
State  bank,  1835,  83 
State   bank   capital,    452 
State  bank  currencies  taxes,   195 
State  Bank  of  Calumet,   Chicago,   372 
State   Bank   of  Indiana,   103 
State   Bank  of  Marine,   372 
State   Savings    Institution,    Chicago,    197 
Statistical    data   available,    607 
Steel  workers'  strike,  323 
Stensland,  Paul  O.,  344 
Stensland,  Theodore,  344 
Stewart,   William   M.,    295 
Stock   Yards  National   Bank,   Chicago,   465 
Stock    Yards    Savings    Bank,    Chicago,    465, 

605 
Stock  Yards  Trust  &  Savings  Bank,  Chicago, 

465 
Strachan   &  Scott,   111 
Strain  in  money  market,  612 
Street,   W.   D.   C,   514 
Streeter,   Alson   J.,   235 
Stuart,  Harold  L,  540 
Sturges,  George,   174,   199,   229 
Sturges,   James  D.,   505,   563 
Sturges,   S.   B.,   502 
Subscriptions  to  certificates  of  indebtedness, 

644 
Suez   Canal,    226 
Sullivan,  Roger  C,  304 

Summerdale  Savings  Bank,  Chicago,   585 
Suspension    of    specie    payments,    177 
Swift  &  Co.  bonds,  542 
Swift,  Edward  F.,  604 
Swifts  bank,  142,  147 


T 


Taxes,  75,   178,   186,   195,   197 

Teamster's   strike,   Chicago,   343 

Teller,  Henry  M„   295,   297 

Third  National  Bank,  Chicago,  230,  237,  247, 

360 
Thon  Bill,  572 

Thon,  William  G.,  572,   574,   575 
Tilden,  Averill,   459 
Tilden,   Edward,   459 

Tinkham,    Edward   I.,    141,   167,   210,   502,    507 
Todd,  John,  46 
Tonti.   Henri   de,   36,   39 
Trading,  31,  44,  48,  79 
Transportation,    24,   25,   26,   79.   88 
Traylor.   Melvin   A.,   444,   495 
Trent  Affair,  179 
"Trust   Busting,"   325,   361 
Trust    departments    in     national    banks.     42:! 


INDEX 


745 


u 


Union   Bank,  Chicago,   147 
Union   Bank   of  Illinois    (State   Bank),   167 
Union   Insurance   &   Trust  Co.,   Chicago.    214 
Union     National     Bank,     Chicago,     203,     230, 

276 
Union  Stock  Yards  National  Bank,   Chicago, 

466,   557 
Union  Trust  Co.,  Chicago,  210 
United  Copper  Co.,  350 
United    States    Loan    &    Trust   Co.,    Chicago, 

248 
United  States,  preferred  creditor,  239 
United    States    Steel    Corporation,    322,    347, 

363,   425,  456 


Vandalia,    69,    73,    87 

Victory  for  sound  money,   307 

Vincennes,   44 

Vreeland,   Edward   B.,  377 

W 

Wabash  Land   Company,   45 

Wade,   Festus   J.,    407 

Walker,  Edwin,  266 

Walsh  failure,  327,  507,  557 

Walsh,  John  R.,   264,   298,   304,   327,   339.   507 

War  conditions,   422,   498,   513,   530,   549,   611 

War  Finance  Corporation,   482 

War   loan   of   Illinois,    172 


War  Savings  Stamps,   433 

War,  Spanish,   318 

Warehouse   receipts,   200 

Washington    Park    National    Bank,    Chicago, 

390 
Wasmansdorf    &    Heinemann,    312 
Western    Trust    &    Savings    Bank,    Chicago, 

582 
Westfall,   P.  H.,   502 
Westinghouse    receivership,    351 
Wharton,  Samuel,  45 
Wheat  corner   in   Chicago,    254 
Wheeler,  Calvin   T.,   519 
Wheeler,  Harry  A.,   399,  401 
Wiggins,   Samuel,   74,   87,   99 
Wildcat  banking,   32.   52,  104,   191 
Wilkins,   Joseph  R.,   522 
Wilmington,  111.,   198 
Wilson,  Woodrow,  396,  401,   408,   409 
Wisconsin    Marine    &    Fire    Insurance    Co., 

Ill,   123,   141 
Woman's  department,  first   in   Chicago,   142 
World's  Columbian  Exposition.  263 
Wright,  George  E.,  521,  522,  528 


Yates,  Richard,  173,  183 
Yerkes,  Charles  T.,  527, 
Young,  Otto,  266,  269 


Zinc    in    Illinois,    30 


529 


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